MAN Ferrostaal Annual Report 2005

2005 

Annual Report 

MAN Ferrostaal AG

At a glance 

The MAN Group 

In 2005, MAN Ferrostaal achieved the second-best operating result in the company's history 

with € 90 million. 

The target Return on Sales figure of 3.2% set for 2007 was achieved ahead of schedule in 

the last fiscal year. 

The Return on Capital Employed rose to 38.1%. 

Value added, meanwhile, reached € 64 million. 

Millions € 2005 2004 Difference in % 

Order intake 3,077 3,508 – 12 

Germany 502 524 – 4 

Abroad 2,575 2,984 – 14 

Sales 2,789 3,185 – 12 

Germany 436 490 – 11 

Abroad 2,353 2,695 – 13 

Orders on hand1) 2,358 2,259 4 

Employees (number) 1) 4,773 4,679 2 

Germany 2,808 2,927 – 4 

Abroad 1,965 1,752 12 

€ 

Difference in millions 

Earnings before interest and tax (EBIT) 90 72 18 

Earnings before tax (EBT) 74 62 12 

Earnings after tax 55 55 0 

Investments 33 36 – 3 

Depreciation of assets and investments 21 34 – 13 

Cash flow from operating activities 315 – 60 375 

Cash flow from investment activities – 25 – 14 – 11 

Cash and cash equivalents1) 373 462 – 89 

Net liquidity1) 511 494 17 

Equity1) 335 307 28 

1) Value as at 

31/12/2005 

compared with value 

as at 31/12/2004

The MAN Group 

MAN is one of Europe´s leading engineering groups. As a systems provider employing some 58,000 people in its 

five core areas of Commercial Vehicles, Industrial Services, Printing Systems, Diesel Engines and Turbomachines, 

MAN operates in 120 countries. In 2005, MAN generated sales of €14.7 billion. The MAN Group ranks among the 

top three suppliers in each of its markets and is a technological leader. MAN´s blue-chip shares are listed in the 

DAX30. engineering the future. 

Business Area Profile 

Commercial Vehicles MAN Nutzfahrzeuge 

is one of Europe´s leading manufacturers of trucks and buses 

and with production facilities in Africa, Asia and Europe, is 

active on an international scale. 

Industrial Services MAN Ferrostaal 

is a worldwide supplier of industrial services. 

Printing Systems MAN Roland Druckmaschinen 

is a globally leading manufacturer and system supplier 

for the graphic industry. 

Diesel Engines MAN B&W Diesel 

leads the world market for two-stroke propulsion engines 

and is the world´s leading supplier of large four-stroke 

diesel engines. 

Turbomachines MAN TURBO 

is one of the world´s leading manufacturers of thermal 

turbomachines with production plants in Germany, Switzerland. 

and Italy.

Range of Products/Services Key Figures (€ million) 2005 2004 

– Trucks from 6 to 50 t to meet every need 

– City buses and luxury coaches 

– Comprehensive vehicle services 

– Engines for vehicles, marine and industrial applications 

– Transport solutions to meet specific customer needs 

across the world 

– Leading general contractor for international plant 

engineering in the sectors of petrochemicals, oil and gas, 

power stations and metallurgy 

– International service-provider for supplying merchant vessels 

– Logistics services for the steel and automobile industries 

– Sales and service partner for printing presses and 

packaging machinery 

– Global market leader in web-offset presses for newspaper 

and commercial printing 

– Second-largest supplier of sheet-offset presses to the 

publishing, advertising and packaging industries 

– Services and software products for all printing needs 

– Two-stroke diesel engines for marine propulsion and power stations 

– Four-stroke diesel engines for marine propulsion, on-board 

power generation and power stations 

– Four-stroke dual-fuel and spark-ignited gas engines for 

power stations and offshore applications 

– Exhaust-gas turbochargers 

– PrimeServ – after-sales services 

– Extensive range of products for the development, 

manufacture and assembly of customized plant and 

machine trains 

– Applications for the primary industry and for the oil 

and gas industry 

– World´s only center for assembling and testing sets of 

plant equipment weighing up to 1,000 t 

Order intake 9,434 7,589 

Sales 7,377 6,799 

Operating profit 469 322 

Employees* 33,368 33,810 

Return on sales ROS (%) 

Return on capital employed 

6.4 4.7 

ROCE (%) 17.9 12.6 


Sales 2,789 3,185 


Employees* 4,773 4,679 



3.2 2.3 

ROCE (%) 38.1 34.1 


Sales 1,738 1,620 


Employees* 8,832 9,026 



3.7 0.2 

ROCE (%) 23.2 0.6 


Sales 1,666 1,421 


Employees* 6,423 6,731 



7.1 3.9 

ROCE (%) 26.1 10.9 

Order intake 850 675 

Sales 694 659 


Employees* 2,476 2,472 



6.2 5.5 

ROCE (%) 23.3 15.7 

* Number at December 31, 2005 and 2004

Contents 

II At a glance 

III The MAN Group 

02 The MAN Ferrostaal Group 

04 Supervisory Board 

05 Executive Board 

06 Report of the Supervisory Board 

08 Report of Executive Board 

Consolidated Management Report 

11 Economic environment 

14 Business highlights at MAN Ferrostaal 

20 Projects & Contracting 

26 Services & Logistics 

31 Employees 

34 Risk Management 

39 Quality Assurance 

40 Strategy and Outlook 

Magazine 

42 Exporting a model for success 

48 Opening up new markets 

58 Consolidated financial statements 

90 Audit certificate of the auditor 

92 Glossary 

94 Our main domestic subsidiaries 

V Seven-year financial summary 

MAN FERROSTAAL AG ANNUAL REPORT 2005 

CONTENTS 

1

2 


THE MAN FERROSTAAL GROUP 

The MAN Ferrostaal 

Group 

MAN Ferrostaal, a subsidiary of the MAN Aktiengesellschaft, is a global provider 

of industrial services. We have assumed leading market positions in both our Projects & 

Contracting and Services & Logistics divisions. 

Projects & Contracting 

The Projects & Contracting division comprises the business segments Industrial Projects and 

Marine Business. This division brings together all of our project-based activities: 

In the business segment Industrial Projects, we carry out major industrial projects on behalf 

of our customers. As a general contractor, we handle project development, including the provision 

of financing solutions – in selected cases with our own equity involvement – and project 

management for turnkey industrial facilities. In this field, we focus on the market segments 

oil and gas, petrochemicals, industrial power plants, metallurgy, and, in the future, we will 

also focus on pulp and paper and on renewable energies. In addition to our many years of 

experience and our worldwide network, one of the main reasons for our success is our independence 

in the market. Unlike many of our competitors in the planning and construction of 

industrial plants, we are not tied to any specific processes or suppliers. We offer our customers 

tailor-made solutions based on their individual needs, and select the best technologies and 

products to accomplish the job. 

The business segment Marine Business is concerned with the financing, design, construction 

and supply of ships in collaboration with renowned shipyards. Our product portfolio is focused 

on special vessels, such as powerful tugboats and double-hulled tankers. In collaboration with 

ThyssenKrupp Marine Systems, we distribute naval ships worldwide. Another key activity in 

this business segment is the assumption and handling of obligations arising from countertrade 

deals. In this area, we are one of the leading companies in Germany, and distinguish ourselves 

from the competition through our internationalism, profound knowledge of markets, and our 

long-standing partnerships with private and state customers.


THE MAN FERROSTAAL GROUP 

Services & Logistics 

The Services & Logistics division comprises the business segments Equipment Solutions and 

Supply Chain Solutions and brings together our service and logistics activities: 

In the business segment Equipment Solutions, we are positioned as a sales and service partner 

for renowned machine manufacturers, with a focus on printing, packaging and high-quality 

special machines. In this sector, we work as a systems supplier with a broad portfolio covering 

entire value-added chains, for which we offer intelligent financing solutions. Thanks to our 

many years of hard work and commitment, we are now the biggest manufacturer-independent 

systems supplier of graphical machines and services in the southern hemisphere. In addition, 

we also develop and implement complex infrastructure projects and supply traffic and transport 

systems. 

In the business segment Supply Chain Solutions, we offer customers of the steel and automotive 

industries comprehensive solutions within the scope of their value added chains. For 

our clients in the steel industry, we operate as a sales and procurement partner by buying and 

selling steel products and non-ferrous metals throughout the world, providing funding for 

these deals, and also handling the logistics. For our partners in the automotive industry, we 

offer a range of complex services, such as the just-in-sequence pre-assembly of individual 

components into complete modules and systems. In this field, we are the leading manufacturerindependent 

supplier in Europe. In addition, we supply pipes and equipment for pipelines, 

and also provide all the related services for the oil and gas industry. 


Industrial Projects 

Petrochemical 

Oil and Gas 

Power Plants 

Metallurgy 

Renewable Energies 

Pulp and Paper 

MAN Ferrostaal Group 

Marine Business 

Navy 

Merchant 

Offset 


Equipment Solutions 

Printing and 

Packaging 

Industrial Systems 

and Transportation 

Service Platform and Project Management for MAN AG 

Supply Chain Solutions 

Automotive 

Materials 

Piping 

3

4 MAN FERROSTAAL AG ANNUAL REPORT 2005 

SUPERVISORY BOARD 

Supervisory Board 

Håkan Samuelsson 

Chairman 

Chairman of the Executive Board MAN Aktiengesellschaft, Munich 

Dr. jur. Karl-Hermann Lowe 

Vice Chairman 

Member of the Executive Board Allianz Versicherungs-AG, Munich 

Brigitte Amamoo * 

Certified Translator until March 10, 2005, Oberhausen 

Dr. Ing. Burckhard Bergmann 

Chairman of the Executive Board E.ON Ruhrgas AG, Essen 

Stefan Breuer * 

Commercial employee at MAN Ferrostaal AG, Essen 

Murat Büyükgünay * 

Commercial employee at MAN Ferrostaal AG since March 10, 2005, Essen 

Jürgen Hahn * 

Commercial employee at MAN Ferrostaal AG, Essen 

Karlheinz Hornung 

Member of the Executive Board MAN Aktiengesellschaft, Munich 

Dr. rer. pol. Klaus von Menges 

Mülheim a. d. Ruhr 

Klaus M. Patig 

Member of the Executive Board Commerzbank Aktiengesellschaft, Frankfurt (Main) 

* elected by the employees

Management Board 

Executive Board 

Dr. jur. Matthias Mitscherlich 

Mülheim a. d. Ruhr 

Chairman of the Executive Board 

Jens Gesinn 

Essen 

Chief Financial Officer 

Helmut Julius 

Bottrop-Kirchhellen 


Dr.-Ing. Wolfgang Knothe 

Essen 

Projects & Contracting since October 1, 2005 

Dr.-Ing. Axel Wippermann 

Essen 

Projects & Contracting until December 31, 2005 


EXECUTIVE BOARD – MANAGEMENT BOARD – EXECUTIVE VICE PRESIDENT 

Management Board 

In addition to the members of the Executive Board 

Bernd Ahlmann 


Printing and Packaging 

Detlef Castro 


Automotive 

Erwin Keutner 


Petrochemical 

Uwe T. Schmidt 


Materials 

Hans-Werner Schwab 


Materials 

Executive Vice President 

Udo Völker 

Project Development Eastern Europe 

5


REPORT OF THE SUPERVISORY BOARD 

Report of the Supervisory Board 

Dipl.-Ing. Håkan Samuelsson, 

Chairman of the Supervisory Board 

In the fiscal year 2005, the Executive Board of MAN Ferrostaal AG kept the Supervisory Board 

continuously and fully informed of all the company’s major business operations and projects 

on the one hand, and of the financial situation of the MAN Ferrostaal Group on the other. 

The Supervisory Board was informed in writing on a quarterly basis about the current course 

of business. At two meetings, the Executive Board expressed its views in detail on important 

subjects, such as corporate strategy, current orders and future opportunities for growth. The 

Committee for Executive Board and Staff Matters met twice. 

The annual financial statements of MAN Ferrostaal Aktiengesellschaft as at December 31, 

2005 and the partially consolidated financial statements prepared voluntarily along with 

the consolidated management report have been audited for the first time by the audit firm 

KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft, Düsseldorf, and were certified 

without qualification of any kind. 

The auditors attended the meeting of the Supervisory Board held to consider the annual 

financial statements, and duly reported. We have approved and noted the result of the 

audit. Following the final result of our own audits of the annual financial statements of 

MAN Ferrostaal Aktiengesellschaft for the fiscal year 2005, we have no objections to raise.


REPORT OF THE SUPERVISORY BOARD 

We approve the annual financial statements and the consolidated financial statements 

prepared by the Executive Board, which are therefore adopted. 

Dr.-Ing. Wolfgang Knothe was appointed to the Executive Board with effect as of October 1, 

2005. As the board member responsible for the division Projects & Contracting, he was initially 

in charge of the business segment Marine Business (naval vessels and merchant vessels). 

As of January 2006, Dr.-Ing. Knothe replaced Dr.-Ing. Axel Wippermann, and has therefore 

also assumed responsibility for the business segment Industrial Projects. We wish him 

every success in his new position. On December 31, 2005, Dr.-Ing. Axel Wippermann’s term 

of office as a member of the Executive Board of MAN Ferrostaal AG ended with the start 

of his retirement. The Supervisory Board would like to thank him for more than eight years 

of committed and successful service to the MAN Ferrostaal Group. 

Ms. Brigitte Amamoo’s term of office on the Supervisory Board ended on conclusion of 

the Annual General Meeting on March 10, 2005. She had been a member of the Supervisory 

Board as an employee representative since October 11, 1990, and her retirement began on 

August 1, 2005. We wish to thank Ms. Amamoo for the valuable contribution she has made. 

We also welcome Mr. Murat Büyükgünay, who became a member of the Supervisory Board as 

an employee representative on March 10, 2005. We also thank the members of the Executive 

Board and all employees of the MAN Ferrostaal Group for their hard work and dedication, 

and the employee representatives for their frank and constructive collaboration in the 

interest of the company. 

Essen, March 8, 2006 

Chairman of the Supervisory Board 

Håkan Samuelsson 

7


REPORT OF THE EXECUTIVE BOARD 

Report of the Executive Board 

Ladies and Gentlemen, 

Dr. jur. Matthias Mitscherlich, 


2005 was a successful year for MAN Ferrostaal. We sustained our market position and 

strengthened it in a number of areas. Both our project business and our service activities 

showed positive development over the past year. As a result of our hard work, we increased 

our operating result significantly and even exceeded the return on sales that we had hoped 

to achieve by 2007. We managed to do this despite a drop in sales, which was caused 

primarily by delayed project settlements. 

In our project business, we have continued the successful development of recent years. 

Particularly worthy of mention is our commissioning of the world’s largest methanol plant 

in Trinidad, which we constructed and handed over to the customer in record time – three 

months before the contractually agreed date of completion. At the same time, we won a large 

contract for the construction of a methanol plant in Oman, which allowed us to transfer our 

petrochemical project design successfully from Trinidad to the Arabian peninsula. 

We are also pleased with the continued positive development of our service activities in 

2005. In our equipment supply business, we improved our costing structures and simultaneously 

strengthened our leading market position as an independent service provider for 

the printing and packaging industries. In the materials business we have created a basis for 

expanding the current steel logistics services concept. In the future in this unit, we would


REPORT OF THE EXECUTIVE BOARD 

like the business figures to increasingly portray only the value added which is generated by 

MAN Ferrostaal, in accordance with a changed business model. 

In October 2005, MAN Ferrostaal presented a new company structure to the world. Our 

structure now rests on two central pillars: the Projects & Contracting division for our project 

activities and the Services & Logistics division for our service activities. This new two-pillar 

model affords us a sharper strategic focus and presents a clearer picture of our company to 

the outside world. 

We used the past year to take further significant steps towards ensuring that our company is 

on course for sustainable success. We thus strengthened our position within the MAN Group 

and established our services as an essential component in the future business strategy of 

the Group. The MAN Group is continuing to evolve from an export company into an internationally 

active Group. In this regard, we will use our international market position to benefit 

the entire Group. Our contacts all over the globe and our local knowledge of countries will 

allow us to open doors to new markets for our sister companies worldwide and thus act as a 

driving force for the internationalisation of the MAN Group. In this way, we will also create 

added value for the MAN Group and, together with our sister companies, we will explore 

new business opportunities for our Group division. We have already assumed leading roles 

in project development and project management. We intend to establish ourselves in these 

areas as a centre of excellence for MAN and to make our methodologies, knowledge and expertise 

available to our sister companies. 

In 2005, we celebrated the 75th anniversary of the foundation of our company. From the 

very beginning, we have always operated profitably and made very steady progress. Since 

our company was established, we have evolved from a trading house into an international 

provider of complex industrial services. We plan to continue this success story well into 

the future. 

We have set ourselves ambitious targets for 2006. We want to increase our result even 

further and improve our returns yet again. To this end, we are pursuing a clear strategy 

focussed on profitable growth. The guiding idea of this strategy is to focus exclusively on 

sustainable and promising sectors. We intend to grow our project business by further 

developing tried and tested business models and applying these in new segments and sales 

markets. The opportunities for growth in our service business also look extremely promising. 

Through additional strategic partnerships, we intend to advance into new market segments. 

At the same time, we will enhance our range of services to suit the needs of our customers. 

We are convinced that MAN Ferrostaal is on the right course with this strategy and that we 

will satisfy all expectations of the MAN Group and its shareholders. 

Essen, March 1, 2006 


Dr. jur. Matthias Mitscherlich 

9

Consolidated 

management report 

The fiscal year 2005 was a highly successful year for MAN Ferrostaal AG: 

We achieved the second-best earnings in the history of our company, with 

earnings before interest and taxes amounting to € 90 million. The Return 

on Capital Employed (ROCE) increased to 38.1% whereas the Return on 

Sales (ROS) improved to 3.2%.

The growth 

in business 

was largely 

stimulated 

by markets 

outside of 

Europe. 

Economic environment 

Robust development of the world economy 

Based on current estimations, the global 

economy grew by 4.3% in 2005, continuing 

the expansion that started three years 

earlier. In the course of the year, the global 

economic development stood firm in the 

face of dampening effects like hurricanes 

“Katrina” and “Rita”, and rode out the alltime 

high in prices for crude oil and natural 

gas. Besides the strong level of domestic 

demand in the USA and the encouraging 

upswing in Japan, the main driving forces 

were the high growth rates in China, parts 

of Eastern Europe, the Near and Middle East, 

and some Latin American countries. As some 

of these countries are also core markets of 

MAN Ferrostaal, we were able to benefit 

from their growth. 

World 

Eurozone 

Germany 

USA 

China 

Real growth GDP in % 

-2 0 2 4 6 8 10 12 

2003 

2004 

2005 

2.5 

3.8 

4.3* 

0.7 

2.1 

1.3 

– 0.2 

1.6 

0.9 

2.7 

4.2 

3.5 

* current estimate 

10.0 

10.1 

9.9 


CONSOLIDATED MANAGEMENT REPORT 

Slight improvement in the euro zone 

While at 1.3%, the overall economic development 

in the Eurozone countries still fell 

short of the worldwide average, it nevertheless 

began to accelerate. The situation 

of industry was improved through a growing 

order intake volume. The growth was 

primarily fuelled by the dynamic foreign 

demand for capital goods, with European 

exports benefiting from a weakening of the 

Euro in the course of the year. The low rates 

of interest on long-term capital also had a 

positive effect on the economic development 

in Europe. 

Modest development in Germany 

Germany experienced a muted upward 

trend in the year under review. GDP rose 

by 0.9% on the previous year. This modest 

upswing was mainly triggered by demand 

from abroad and the overall positive 

development of the global economy. The 

devaluation of the Euro against the US 

Dollar also gave German companies a 

greater competitive edge. Exports grew 

by 7.5%, but weak domestic demand and 

the continuing stagnation in private 

consumption in Germany put a drag 

on the rate of growth. Nevertheless, there 

are some indications that the German 

economy is also starting to pick up speed. 

This is likewise reflected in the indicators 

for the German business climate, which 

improved noticeably in the last few months 

of the year. 

11

12 

We were able 

to benefit from 

the positive 

worldwide 

development in 

large-scale 

industrial facility 

construction 

in 2005. 



1 2 

Record year for large-scale industrial 

facility construction business 

For the German industrial facility engineering 

industry, the past year was very successful. 

Between July 2004 and June 2005, 

German companies received new orders 

worth € 19.1 billion (previous year: € 17.4 

billion). In the further course of 2005, 

business continued to develop at a similarly 

high level. This positive development was 

mainly the result of orders received from 

abroad. These increased by 9% and totalled 

€ 15.6 billion. 

The most important customers were the 

oil and gas producing countries of the Near 

and Middle East, who invested heavily in expanding 

their production capacities. Among 

the biggest buyers of this kind of equipment 

were Iran and Saudi-Arabia. Other major orders 

came from Oman, Bahrain and Qatar. 

But large orders also came from customers 

in Russia, investing primarily in the expansion 

and modernisation of their oil and gas 

production capacities. The biggest single 

market was once again China with € 2.1 billion, 

although the order intake from there fell 

by 12%. 

In Germany, demand also revived, growing 

by 11% to € 3.5 billion. This improvement 

derived primarily from an upturn in the 

domestic power plant business. 

Merchant Shipping 

The expanding world economy also led 

to good growth in the merchant shipping 

sector. This was also stimulated by the more 

stringent ecological regulations of the International 

Maritime Organisation, which 

will come into force in 2010. As a result, 

the world’s tanker fleet is in a process of 

profound change. In Europe, single-hull 

tankers are being increasingly taken out of 

service for safety reasons. In light of this, 

the demand for double-hull tankers in particular 

rose in 2005, and MAN Ferrostaal 

also benefited from this development. 

Strong demand for German 

machines abroad 

The past year was also a successful one for 

the German mechanical engineering industry. 

According to current estimates, machine 

production rose by 4.4%, adjusted for price 

changes. This positive development is being 

driven almost exclusively by an increased 

demand from abroad. Exports effectively 

increased by 7.7 % and totalled € 107 billion. 

Exports to commodity-rich regions, such as 

various countries in Latin America and in the 

Near and Middle East, rose at an above-average 

rate. Boosted by the positive development of 

the world economy and the higher budgets 

for printing products, the rise in demand 

for printing and packaging machinery was 

particularly sharp. Domestic demand for 

industrial machinery also enjoyed a positive 

development and indicated the first signs 

of recovery with a nominal growth of 2.6%.

All the main 

industries in 

which MAN 

Ferrostaal 

operates 

recorded 

a positive 

development 

in 2005. 

3 

1 M5000 methanol plant in Trinidad 

2 Pre-assembly of car parts in Gliwice, Poland 

3 

MAN Roland 500 printing press delivered by MAN Ferrostaal 

Growth trend in steel continues 

In 2005, steelmakers produced around 

1.129 billion tonnes of crude steel worldwide, 

thus once again exceeding the record output 

of the previous year. The main driving force 

behind this development was, as in previous 

years, the economic development in Asia, 

and in particular China, where the output 

rose by 24% to 349 million tonnes in 2005. 

This is equivalent to a world market share 

of around 31%. In the course of the year, 

the country developed from a net importer 

into a net exporter of steel products. 

2005 was strongly marked by an initial 

sharp drop in the price of steel products, 

which in some cases continued through to 

the late summer. Prices for hot wide strip, 

for example, fell in the USA by up to 30% 

over the coarse of the year. The reason for 

this fall was an increased level of stocks 

in the steel supply chain. However, prices 

stabilised again in autumn, and by the end 

of the year they were even starting to rise 

again slightly for some products. 



Automotive industry 

2005 was a successful year for the Western 

European automotive industry. With 14.5 

million vehicles sold, a volume of sales 

comparable to 2004 was achieved. Higher 

sales figures were hindered especially by 

the rise in fuel prices and the disappointing 

development of the domestic economy. 

In Germany, automobile production rose 

by 3% to 5.4 million vehicles. Automobile 

exports increased by 4% to 3.8 million 

units and were a key factor in the positive 

development of the industry. 

13

14 



Business highlights at MAN Ferrostaal 

Key developments in 2005 

• With an EBIT of € 90 million, MAN 

Ferrostaal achieved the second-highest 

result in the company’s history (previous 

year: € 72 million). 

• ROS rose to 3.2% (previous year: 2.3%). 

ROCE grew to 38.1% (previous year: 

34.1%). The target ROS figure set for 2007 

was already achieved in 2005. 

• In 2005, MAN Ferrostaal created added value 

of € 64 million for the shareholders of 

MAN AG (previous year: € 49 million). 

Order intake below previous year’s level 

The intake of new orders at MAN Ferrostaal 

in the fiscal year 2005 amounted to € 3,077 

million, i.e. 12% below the record level of the 

previous year (€ 3,508 million). This decline 

was expected, and mainly resulted from the 

drop in steel prices. 

With a volume of € 1,124 million, the division 

Projects & Contracting achieved an order intake 

almost equivalent to the previous year’s 

level (€ 1,136 million). Of this figure, € 971 

million was accounted for by the business 

segment Industrial Projects (previous year: 

€ 957 million) and € 153 million by the busi- 

3,5 

3,0 

2,5 

2,0 

MAN Ferrostaal Group division key figures – five-year overview 

in billions € 

Order intake 

Sales 

Orders on hand 

In the fiscal year 2005, MAN Ferrostaal increased its earnings from € 72 million to € 90 

million, and improved its key rates of return. This growth in the result was achieved despite 

a fall in the intake of new orders by 12% to € 3,077 million (previous year € 3,508 million) 

and a decline in sales by 12% to € 2,789 million (previous year € 3,185 million). Besides 

a strong contribution from the service business, growth was above all due to income from 

investments in connection with the operation of industrial facilities which we had built in 

previous years as a general contractor. 

ness segment Marine Business (previous 

year: € 179 million). New orders received by 

the division Services & Logistics amounted 

to € 1,953 million, compared to € 2,372 million 

in the previous year. The business segment 

Equipment Solutions contributed € 387 

million to this figure (previous year: € 347 

million), and the business segment Supply 

Chain Solutions € 1,566 million (previous 

year: € 2,025 million). 

Orders from abroad made up 84% of the new 

order intake. The most important regions 

were Asia with 27% (including the Near and 

Middle East), followed by Europe with 26%,

Breakdown of new orders by business sectors (in %) 

(Total: € 3,077 millions) 

51 % 

31 % 

5 % 

13 % 

Projects & Contracting (€ 1,124 millions) 

Industrial Projects (€ 971 millions) 

Marine Business (€ 153 millions) 

Services & Logistics (€ 1,953 millions) 

Equipment Solutions (€ 387 millions) 

Supply Chain Solutions (€ 1,566 millions) 

Latin America with 23%, the USA with 20% 

and others 4%. Germany contributed 16% to 

the order intake. 

Decrease in sales 

Sales at MAN Ferrostaal fell in the year 

under review by 12% to € 2,789 million 

(previous year: € 3,185 million). The reasons 

for this decrease were, on the one hand, 

delays in contracts coming into force, and 

on the other, the fact that in the case of 

logistic services, increasingly only the value 

added which is generated by MAN Ferrostaal 

in accordance with a changed business 

model is applied. 

In the division Projects & Contracting, sales 

amounted to € 807 million, i.e. 28% down on 

the previous year’s figure (€ 1,121 million). Of 

this total, the business segment Industrial 

Projects accounted for € 773 million (previous 

year: € 1,016 million), and the business 

segment Marine Business for € 34 million 

(previous year: € 105 million). 



Breakdown of sales by business sectors (in %) 


28 % 

57 % 

1 % 

14 % 

Projects & Contracting (€ 807 millions) 

Industrial Projects (€ 773 millions) 

Marine Business (€ 34 millions) 

Services & Logistics (€ 1,982 millions) 

Equipment Solutions (€ 390 millions) 

Supply Chain Solutions (€ 1,592 millions) 

In the Services & Logistics division, sales 

totalled € 1,982 million, i.e. 4% less than 

in 2004 (previous year: € 2,064 million). 

Equipment Solutions contributed € 390 

million to this total (previous year: € 340 

million), and Supply Chain Solutions € 1,592 

million (previous year: € 1,724 million). 

At 31%, the largest share of net sales came 

from Europe, with Latin America in second 

place (26%), followed by the USA with 23%, 

Asia with 14% and others with 6%. Germany 

contributed 16% to our total sales. 

Orders on hand at a high level 

Orders on hand grew by 4% to € 2,358 million 

(previous year: € 2,259 million). The division 

Projects & Contracting stood at € 1,768 million 

as at December 31, 2005, compared to € 1,597 

million the previous year. The business 

segment Industrial Projects accounted for 

€ 1,009 million (previous year: € 923 million) 

and the business segment Marine Business for 

€ 759 million (previous year: € 674 million). 

15

16 



Orders on hand in the division Services & 

Logistics fell by 11 % to € 590 million at the 

end of the year (previous year: € 662 million). 

The business segment Equipment Solutions 

contributed € 210 million to this figure (previous 

year: € 210 million), and the business 

segment Supply Chain Solutions € 380 million 


Rise in operating result 

In 2005, MAN Ferrostaal achieved the 

second-best result in its history. Despite 

substantial special expenses, EBIT amounted 

to € 90 million, i.e. considerably up on the 

previous year’s level (€ 72 million). 

This increase resulted from a stable operating 

business, strong development in our service 

business, and successful business progress 

of our petrochemical activities. 

In this context, the legal consolidation of our 

methanol and ammonia project companies 

into one holding company and the intro- 

Order intake 2005 by region 


23 % 

20 % 

2 % 

16 % 

6 % 

4 % 

2 % 

27 % 

Germany (€ 502 millions) 

EU excluding Germany (€ 196 millions) 

Rest of Europe (€ 124 millions) 

Africa (€ 73 millions) 

Asia (€ 821 millions) 

Australia (€ 59 millions) 

North America (€ 603 millions) 

Latin America (€ 699 millions) 

duction of “at-equity” accounting had a 

positive effect. The operating result was 

also boosted by restructuring measures implemented 

over the course of the past year. 

Despite the first-time inclusion of twelve 

companies in the consolidated financial 

statements, the administrative expenses of 

€ 99 million remained virtually unchanged 


Improved key rates of return 

Besides the operating result, ROS and 

ROCE are the main performance indicators 

used within the MAN Group. 

The positive development in the operating 

result and successful working capital management 

also improved the corresponding 

key figures at MAN Ferrostaal. 

ROS increased to 3.2% (previous year 2.3%), 

whereas ROCE rose to 38.1% (previous year: 

34.1%). As a result of this development, the 

target ROS figure we set ourselves for 2007 

was already achieved in 2005. 

Sales 2005 by region 

(Total: € 2,789 million) 

26 % 

23 % 

16 % 

2 % 

9 % 

6 % 

4 % 

14 % 

Germany (€436 million) 

EU excluding Germany (€ 249 million) 

Rest of Europe (€ 160 million) 

Africa (€ 105 million) 

Asia (€ 378 million) 

Australia (€ 69 million) 

North America (€ 646 million) 

Latin America (€ 746 million)

Sharp increase in earnings before tax 

In 2005, MAN Ferrostaal recorded one of 

the best EBT figures in the history of the 

company. At € 74 million, earnings before 

tax were up 21% from the previous year 

(€ 62 million). 

Income tax increased in the past fiscal year 

to € 19 million (previous year: € 7 million). 

Despite the increased tax burden, MAN 

Ferrostaal still had a below-average tax rate 

in 2005 of 25.5% (previous year: 10.4 %). 

This low rate is partly due to the high proportion 

of tax-free foreign profits included 

in the overall result. As a result of the increased 

tax burden, the net income of € 55 

million was at the same level as the previous 

year. 

Value added 

Value added is the financial indicator that 

shows the extent to which MAN Ferrostaal 

has been able to earn its cost of capital and 

add value for the shareholders of MAN AG. 

In 2005, MAN Ferrostaal increased its value 

added by 31% to € 64 million, up from € 49 

million in the previous year. MAN Ferrostaal 

has therefore made a major contribution 

to the positive overall performance of the 

MAN Group. 



Pension accruals transferred to 

MAN Pension Trust 

Under a framework trust agreement to safeguard 

employer-funded company pension 

provision, MAN Ferrostaal transferred liquid 

funds amounting to € 205 million in 2005 

to MAN Pension Trust e.V. 

The trust agreement fulfils the security 

criteria of a contractual trust agreement 

(CTA) and was consequently carried on 

the liabilities side of the balance sheet in 

accordance with IFRS. 

Cash flow statement 

At the start of the fiscal year 2005, MAN 

Ferrostaal had cash and cash equivalents 

worth € 462 million. At € 315 million, cash 

flow from operating activities was at an 

extraordinarily high level (previous year: 

€ -60 million). In particular an increase in 

customer pre-payments of € 205 million 

(previous year: € 114 million) and a reduction 

in trade receivables of € 109 million (previous 

year: € -7 million) contributed to this 

positive development. 

At € -25 million, cash flow from investment 

activities was up significantly (previous year: 

€ -14 million). This increase was mainly due 

to expansion within our international automotive 

services and to the strengthening of 

our market position in the Latin American 

facility construction business. 

Changes in the most important key figures in the MAN Ferrostaal Group (in millions €) 

2005 2004 2003 

EBIT 90 72 73 

EBT 74 62 65 

ROS in % 3.2 2.3 2.5 

ROCE in % 38.1 34.1 22.3 

Net income 55 55 40 

Value added 64 49 73 

17

18 



Against the positive cash flow from operating 

activities, the cash flow from financing 

activities in the amount of € -389 million 

was down on the previous year’s figure 

(€ -34 million). This was largely due to the 

aforementioned endowment of the pension 

fund with a sum of € 205 million and the 

repayment of financial liabilities in the 

amount of € 108 million. 

In summary, therefore, the cash and cash 

equivalents fell considerably in the course of 

the year to € 373 million (as at December 31, 

2005). Above all, the special item, that is, the 

endowment transferred to the MAN Pension 

Trust to provide cover for pension accruals, 

had a dampening effect. Adjusted for the 

CTA model, the cash and cash equivalents 

increased by 25% to € 578 million, largely 

due to the rise in working capital. 

Sound balance sheet structure 

The first-time consolidation of 12 new 

companies has had very little effect on 

the MAN Ferrostaal balance sheet structure 

overall. A notable exception to this are the 

tangible assets, which have risen due to the 

increase in the group of consolidated companies 

to € 149 million (previous year: 

€ 116 million). 

MAN Ferrostaal's Cash Flow Statement in millions € 

The MAN Ferrostaal balance sheet total rose 

by just under 3% to € 2,382 million (previous 

year: € 2,316 million). On the assets side, noncurrent 

assets have risen from € 330 million 

to € 463 million in the fiscal year 2005. This 

increase is essentially due to the positive 

development shown in the operating results 

of our methanol and ammonia plant investments 

in Trinidad (at-equity accounting). 

Despite the endowment transfer to pension 

accruals, the recognised cash and cash equivalents 

and short-term securities still make 

up a substantial part of the balance sheet 

total at 23%. 

There was a significant change in the balance 

sheet liabilities in the fiscal year 2005. As 

a result of balancing of the accounts with 

the monies transferred to the MAN Pension 

Trust, pension accruals have fallen from 

€ 232 million to € 30 million as at 

December 31, 2005. 

Current liabilities and accruals rose by 

14 % to € 1,942 million (previous year: 

€ 1,706 million). This increase is due for the 

most part to high customer pre-payments 

and provisions for risk that were arranged 

for several orders. 

2005 2004 

Cash and cash equivalents at start of year 462 568 

Cash flow from operating activities 315 – 60 

Cash flow from investment activities – 25 – 14 

Cash from from financing activities – 389 – 34 

Other 10 2 

Cash and cash equivalents at end of period 373 462

The positive business development enabled 

current financial liabilities to be reduced 

by 83 % to € 21 million (previous year: 

€ 123 million). As a result, MAN Ferrostaal 

hardly needed any interest-bearing loans 

at the end of 2005. Compared with the previous 

year, equity increased by € 28 million 

to € 335 million. The equity ratio thus rose 

from 13.3 % to 14.1 %. The total equity of 

approximately € 440 million covers virtually 

all non-current assets (€ 463 million). 

Supplementary report 

Following the end of the fiscal year, no 

particular events have occurred that could 

have had a significant effect on the course 

of business. 

The following pages give a detailed 

presentation of the business development 

of he two divisions, Projects & Contracting 

and Services & Logistics, and the business 

segments within these. 

The new two-pillar company structure and 

the restructuring measures that were carried 

out in 2005 in the industrial machine business 

have in part caused changes to the terms 

of reference of some of the previous year’s 

values. The figures specified in the report 

have been adjusted to the new company 

structure and are comparable. 



19

20 



The business 

segment IndustrialProjects 

operates 

in industries 

where growth 

is strong. 


The division Projects & Contracting comprises the two business segments Industrial 

Projects and Marine Business. In this field, we undertake large-scale industrial and 

shipbuilding projects on the international stage as a general contractor. The new order 

intake in 2005 amounted to € 1,124 million and was thus more or less equivalent to the 

previous year’s level (€ 1,136 million). Because of delays in projects being awarded and 

implemented, sales fell to € 807 million (previous year: € 1,121 million). At the end of 

the fiscal year 2005, the segment had orders on hand amounting to € 1,768 million 

(previous year: € 1,597 million). 


In the year under review, in the business 

segment Industrial Projects the intake of new 

orders totalled € 971 million and remained 

at the same high level as the previous year 

(€ 957 million). This success was largely due 

to the positive development of our petrochemical 

activities. Orders came in particular 

from customers in the Near and Middle East 

and Latin America, the majority of whom 

work in the oil and gas industry and among 

whom there is considerable readiness to 

invest due to the rise in commodity prices. 

Because of delays in project awards and contracts 

coming into force, sales fell to € 773 

million (previous year: € 1,016 million). 

Thanks to the receipt of several major new 

contracts, orders on hand rose to € 1,009 

million (previous year: € 923 million). 

Expansion of our methanol activities 

In 2005, we received a contract from the 

Oman Methanol Company for the construc- 

Industrial Projects Key Figures (in millions €) 

tion of a turnkey methanol plant in Oman 

with an annual capacity of 1 million tonnes. 

The partners involved succeeded in completing 

all the relevant project and financing 

agreements within a record time of twelve 

months. MAN Ferrostaal has indirectly taken 

a minority shareholding in the plant. Our 

long-standing collaboration with the same 

project partners with whom we successfully 

realised the construction and financing of 

four methanol plants in Trinidad gives us 

every reason to expect that this new project 

will also be a success. 

Commissioning of world's largest 

methanol plant 

In the year under review, we handed over the 

world’s largest methanol plant to Methanol 

Holdings (Trinidad) Limited. This was the 

fourth turnkey plant we have constructed 

for this client. The plant was built in a record 

time of just over two years, and completed 

2005 2004 ∆ % 

Order intake 971 957 + 1 

Sales 773 1,016 – 24 

Orders on hand 1,009 923 + 9

1 2 

Our Delayed 

Coker project 

has been 

awarded as 

the “Latin 

America Deal 

of the Year 

2005” 

1 

2 

N2000 ammonia plant in Trinidad 

Foundations of the MO3000 plant in Oman 

three months ahead of the contractually 

agreed deadline. MAN Ferrostaal has taken a 

minority shareholding in the plant. The project 

was managed in an extremely successful 

manner, not least due to the excellent and 

goal-oriented collaboration between all 

parties involved. 

Delayed coker for Chile 

The Chilean state-owned oil company ENAP 

has commissioned MAN Ferrostaal, as part 

of an international consortium, to construct 

a delayed coker unit in Chile. We will be 

responsible for construction and assembly, 

and for delivery of equipment. The plant 

is to be strategically located close to the 

existing Aconcagua refinery, 200 kilometres 

from the capital Santiago de Chile and the 

industrial seaport of Valparaiso. The goal 

of this investment project is to use heavy 

residues from the refinery to produce fuel 

and to lend much greater flexibility to the 

operation of the refinery. Thanks to the 

innovative financing package, which was 

in part put together by MAN Ferrostaal, an 

international journal awarded this project 

the title of “Latin American Deal of the 

Year 2005”. 

Sophisticated power station enlargement 

On behalf of the Fajr Petrochemical 

Company, we are enlarging the capacity of 

an existing 580 MW power plant at Bandar 

Imam Khomeini in Iran to 830 MW. In addition 

to the design and engineering work, 



our scope of activities also includes the 

supply, installation and commissioning of 

two gas turbines. The existing plant supplies 

the adjoining petrochemical companies with 

electricity, process steam and treated water. 

The construction work for the enlargement 

began last year, while supply of the main 

components is scheduled for the end of 

2006. We also received a further major 

order last year from our customer Mobin 

Petrochemical Company, to whom we are 

supplying gas turbines and generators to 

enlarge the capacity of the Bandar Assalouyeh 

power plant complex in Iran. 

Expansion into Thailand 

Together with a local partner in Thailand, 

we received a contract in the year under 

review for the construction of a turnkey 

compressor station for the state-owned 

oil company PTT Public Company Limited. 

Under this contract, we are contributing our 

competence as project managers and, in addition 

to the engineering, we are responsible 

above all for the sourcing and commissioning 

of the plant. Rayong Province, where the 

plant is being built, is one of Thailand’s most 

important industrial regions and is also the 

location of the country’s largest industrial 

port. It is mainly characterised by the presence 

of petrochemical companies and 

heavy industry. MAN Ferrostaal sees the 

constantly growing consumption of natural 

gas and the ever-increasing need for energy 

supply facilities as a major potential for 

21

22 



1 2 3 

We intend to 

significantly 

expand the 

activities of 

the business 

segment 

Industrial 

Projects in the 

coming years. 

expanding the business activities of 

MAN Ferrostaal in this market. 

Compressor station for Turkmenistan 

From Turkmenistan, we received a further 

partial contract for the construction of a 

new gas compressor station designed to 

transport up to 4 billion cubic metres of 

gas per year for export. 

Difficult order in Bulgaria 

The renovation of an old Russian coal-fired 

power plant in Bulgaria is proving to be a 

very tough project. Technical complications 

will push back the estimated date of completion 

considerably and this has accordingly 

affected our provisions for risk in relation 

to this project. We are currently working 

very intensively on possible solutions in 

collaboration with our customer and our 

consortium partner RWE Solutions. 

Successful entry onto the 

Vietnamese market 

In 2005, MAN Ferrostaal succeeded in making 

an important advance into the Vietnamese 

market. We constructed a galvanising and 

paint coating line for the country’s largest 

state-owned building firm, LILAMA. As general 

contractor, MAN Ferrostaal was able to hand 

over the plant to the customer during the 

past year. With economic growth of over 7%, 

Vietnam is, after Singapore, the fastest growing 

economy in South-East Asia. With an infrastructure 

that is capable of development, 

exports that are growing solidly year-on-year, 

1 Pipelines from offshore natural gas fields in Thailand 

2 Construction of a refinement plant for the generation 

of high-grade gas, diesel and liquid gas in Chile 

3 Fajr Petrochemical Co. power plant in Iran 

4 Compressor station in Turmenistan 

5 Construction of a petrochemical plant in Santa Fe, Chile 

6 Examining coated steel coil at a galvanising and 

paint coating plant in Vietnam 

and strong growth in industrial production 

and the construction sector, Vietnam 

represents a very promising market for 

MAN Ferrostaal’s range of activities. 

Power plant enlargement in Venezuela 

In the past year, we stayed on schedule with 

the turnkey enlargement of a 300 MW gas 

turbine power plant into a 475 MW gas and 

steam turbine power plant. Completion is 

scheduled for 2007. 

Business expectations at 


For the fiscal year 2006, we expect the order 

situation to remain good. We are optimistic 

about being able to increase both our order 

intake and our sales, not least because of the 

project shifts outlined above. The Industrial 

Projects sector lies at the heart of our growth 

strategy. We will systematically expand our 

project management and project development 

activities. 

In the petrochemicals field, we are in the 

process of creating new markets for methanol. 

We will also include other gas-processing 

technologies in our portfolio. In 

view of the rising demand for gas products, 

we anticipate an increasing number of in-

4 5 

6 

We see 

opportunities 

for growth 

especially in 

the Near and 

Middle East, 

Latin America 

and South- 

East Asia. 

vestment projects in the coming years with 

specifications that are ideally matched to 

our core strengths. In this field of activity, 

we are focussing mainly on the Near and 

Middle East and Latin America. 

The Near and Middle East is an especially 

important sales market for us. The countries 

in the region have high levels of economic 

growth, significant gas reserves, and also the 

financial resources required to forge ahead 

with major industrial projects. With the construction 

of the methanol plant in Oman, we 

have already gained a good foothold in the 

region, and see opportunities for follow-up 

orders. We are also very well positioned in 

Latin America. We believe that we will also 

be able to further expand our activities 

there in the near future. 

The future prospects of our oil & gas activities 

are similarly positive. The demand for 

turnkey facilities for the treatment and 

transport of crude oil and natural gas is 

growing constantly. We are currently concentrating 

primarily on Iran and Turkmenistan. 

Both are challenging markets. But, as we 

have had a presence on the ground there 

for many years and have the necessary 

knowledge of the local market, we are 

operating very successfully in those countries. 

In future, we also intend to become 

increasingly active in Asian countries such 

as Thailand, Malaysia and Indonesia. The oil 

and gas industries located in those countries 

have a strong need to upgrade their infrastructures, 

for example with compressor 



stations and gas treatment plants. In 2005, 

we succeeded in entering the market in 

Thailand with the construction of one such 

compressor station. This is a good basis on 

which to further strengthen our market 

position and acquire additional orders. 

We see strong market potential for our 

power plant activities, since many countries 

have a high demand for additional energy 

supply capacities. Our technical focus in 

this area is on steam and gas turbine power 

plants, not least because these have a very 

high level of operating efficiency. In future, 

we will expand our activities in the power 

plant field in collaboration with our sister 

company MAN B&W Diesel on the worldwide 

market for diesel power plants. 

We see good growth opportunities for the 

market segments of pulp and paper as well 

as renewable energies, which we are now also 

including in our portfolio. This will mean a 

useful addition to our range of capabilities. 

At the present time, we are working together 

with our partners on promising projects 

in Europe, Asia and Latin America, and see 

good chances of these being implemented 

as early as 2007. 

23

24 



1 2 

In the business 

segment 

Marine 

Business, we 

are leaders in 

the building of 

double-hull 

tankers. 

Marine Business 

In the business segment Marine Business, 

the intake of new orders fell in 2005 to € 153 

million, down from € 179 million in the 

previous year. This drop was expected, since 

the new order intake in 2004 was excepionally 

high due to the implementation of 

a contract for the supply of two Type 209 

submarines to Portugal. Within the business 

segment, our merchant vessel activities developed 

particularly well, and we were able 

to benefit from the positive development 

of the global merchant shipping industry in 

2005 and the rise in demand for double-hull 

tankers. Sales fell for invoice accounting 

reasons to € 34 million (previous year: € 105 

million). Orders on hand rose over the course 

of the year, and as at December 31, 2005, 

amounted to € 759 million (previous year: 


1 

2 

3 

Marine Business Key Figures (in millions €) 

Anchor Handling Tug delivered to a German shipping company 

Christening of a submarine for the South African Navy 

The “Wappen von Berlin” Safety Chemical Oil Tanker (SCOT) 

New joint venture founded 

In the year under review, we put in place all 

necessary measures for hiving off our naval 

activities as of 2006, when they will be 

placed in a joint venture with ThyssenKrupp 

Marine Systems AG. This measure will 

benefit cooperation in the field of sales 

and enable more effective and efficient 

joint marketing. 

Submarine commissioned 

Last year, after four years of construction 

work, we delivered a Type 209 submarine 

to the South African Navy in collaboration 

with our consortium partner ThyssenKrupp 

Marine Systems. Two more submarines are 

currently under construction for the South 

African Navy, with delivery scheduled for 

2007. 

2005 2004 ∆ % 

Order intake 153 179 – 15 

Sales 34 105 – 68 

Orders on hand 759 674 + 13

3 

Worldwide demand for SCOT tankers 

In 2005, we received a repeat order from a 

German shipping company for four Safety 

Chemical Oil Tankers (SCOT). This type of 

vessel is currently in demand throughout 

the world, and, because of its double hull 

and redundant propulsion and steering 

systems, is regarded as particularly safe. The 

tankers are scheduled for delivery in 2007 

and 2008, so that the fleet of SCOT tankers 

supplied by us will then number twelve 

units in total. 

Repeat orders for special tugboats 

In 2005, we also received orders for the supply 

of four special tugboats. These are repeat 

orders from a German shipping company to 

whom we have already delivered a 100 tonne 

AHT (Anchor Handling Tug) tugboat in the 

past. 

Reduction in offset 

transaction obligations 

We used 2005 to make further scheduled 

reductions in our countertrade obligations 

arising from our naval shipbuilding projects 

in Greece, Portugal and South Africa. Through 

the investment measures undertaken, we 

have made an important contribution to 

structural improvements in a number of 



sectors in those countries and to small and 

medium-sized industries located there. 

Business expectations 

for the Marine Business 

MAN Ferrostaal’s ongoing merchant vessel 

and offset transaction activities give us 

grounds to anticipate positive business 

development. In view of the rise in global 

volumes of goods and trade, we expect 

the strong demand for merchant ships to 

continue. We will continue to pursue our 

successful strategy of concentrating on 

special products. At the same time, we 

will ensure the availability of shipbuilding 

capacities by entering into further strategic 

partnerships with international shipyards, 

especially in Eastern Europe. 

The handling of countertrade transactions 

will play an even greater role at MAN 

Ferrostaal in the future. In our dealings 

with state authorities, we note an increasing 

trend towards countertrade transaction 

obligations, and see opportunities here for 

additional business volumes, which we are 

in a position to handle thanks to our portfolio 

of capabilities. In this context, we are 

also intensifying collaboration with our 

sister companies in the MAN Group. 

25

26 



The business 

with printing 

and industrial 

machines 

developed 

positively and 

offers further 

potential. 


Our Services & Logistics division, with its business segments Equipment Solutions and 

Supply Chain Solutions, brings together our activities that relate primarily to services 

and logistics. Our intake of new orders in 2005 amounted to € 1,953 million, compared 

to € 2,372 million in the previous year. This fall was mainly due to lower steel prices in 

the Materials business. Sales saw a decline to € 1,982 million (previous year: € 2,064). 

At the end of the fiscal year, the orders on hand stood at € 590 million, compared to 

€ 662 million as at December 31, 2004. 


The business segment Equipment Solutions 

developed well in 2005. The intake of new 

orders grew to € 387 million (previous year: 

€ 347 million) and we benefited from the 

strong economic development in China and 

the positive economic situation in our Latin 

American core markets. Sales also improved, 

increasing by 15% to € 390 million (previous 

year: € 340 million). At the end of 2005, 

orders on hand stood unchanged at 

€ 210 million. 

Printing machines business on the up 

In 2005, we succeeded in significantly improving 

the cost structures in our Printing 

and Packaging sector and in further strengthening 

our position as market leader in the 

southern hemisphere. At the same time, the 

recovery in the printing and packaging industry 

also had a positive effect on the business 

situation. Besides our sister company MAN 

Roland, our most important partners included 

Equipment Solutions Key Figures (in millions €) 

the manufacturers Manugraph (India) and 

Nilpeter (Denmark). 

Our most important sales region was once 

again Latin America. In Mexico and Brazil, 

we succeeded in significantly increasing our 

sales volume. In South Africa, we took over 

the company Printing Products Ltd. This 

constitutes an important addition to our 

portfolio of offerings and further enhances 

our systems expertise. 

In 2005, we restructured our Industrial 

Systems and Transportation sector, integrating 

the business of machines, system 

lines and transport systems within a single 

unit. This will enable us to leverage the 

existing synergies to an ever greater degree 

and to take greater advantage of future potential. 

We achieved particular success with 

the supply of three 3-stand rolling lines and 

the associated peripherals, as well as the 

2005 2004 ∆ % 

Order intake 387 347 + 12 

Sales 390 340 + 15 

Orders on hand 210 210 0

1 2 

We intend to 

consistently 

expand the 

activities of 

the business 

segment 

Equipment 

Solutions. 

modernisation of two existing rolling mills 

for China. The year also saw the handover 

and final acceptance of a further 4-stand 

aluminium rolling mill, including the upstream 

and downstream machinery. The 

annual output of thin aluminium foil in 

China has increased by 130,000 tonnes per 

year through these deliveries alone. We also 

received several orders from China to supply 

equipment for the production of medals and 

coins; this will be used, among other things, 

for pressing the medals for the 2008 Olympic 

Games in Beijing. 

Successful cooperation within the Group 

In cooperation with our sister company 

Neoman, we succeeded in penetrating the 

Mexican market for buses. As a result, we 

were able to win orders in 2005 for the supply 

of a total of 525 buses and chassis. This intragroup 

cooperation with Neoman enables 

us to make use of synergies and also develop 

further potential in Latin America. At present, 

we are expanding our service network in 

Mexico in order to be able to offer a complete 

range of services for buses and trucks, together 

with Neoman and MAN Commercial Vehicles. 


at Equipment Solutions 

We see good growth opportunities for our 

business segment Equipment Solutions and 

are confident that we will be able to continue 

the positive development in the coming year. 

In the Printing and Packaging business, we 



1 Aluminum rolling milling for the manufacture of 

aluminum foils delivered to China 

2 

Commissioning of a MAN Roland web fed offset 

printing press 

also anticipate that the upward trend will 

continue. By entering into further strategic 

partnerships, especially with Asian suppliers, 

we plan to extend our product portfolio and 

penetrate new market segments. We also 

intend to aim for external growth through 

the selective acquisition of international 

suppliers with complementary offerings. At 

the same time, we plan to further strengthen 

our market position by intensifying our efforts 

in the service and spare parts business. 

In the Industrial Systems and Transportation 

business, we see a wide range of opportunities 

for the future. On the one hand, the 

economic development in many threshold 

countries is boosting the demand for industrial 

machinery. And, on the other, more and 

more production enterprises in emerging 

industrialised countries are interested in 

selling their machines throughout the world. 

For such companies, we are highly regarded 

as a cooperation partner thanks to our sales 

expertise, our extensive knowledge of the 

individual countries, and our international 

sales network. There is a significant demand 

in many countries for the extension and 

modernisation of existing rail networks. 

We seek to take advantage of this for our 

business, and at the same time make a contribution 

to improving the infrastructures 

in those countries by developing tailor-made 

transport solutions. 

27

28 

1 




The intake of new orders in our business 

segment Supply Chain Solutions amounted 

to € 1,566 million in 2005 (previous year: 

€ 2,025 million). This decline was expected, 

and mainly resulted from the worldwide 

fall in the prices for steel products. Sales decreased 

8% to € 1,592 million (previous year: 

€ 1,724 million). The main reason for this is 

that in the field of logistic services, increasingly 

only the value added which is generated 

by MAN Ferrostaal in accordance with a 

modified business model is applied. At the 

end of the year, the sector had orders on 

hand worth € 380 million, compared to 

€ 452 million in 2004. 

In the Materials business, we sold a total of 

2.5 million tonnes of steel (previous year: 

3 million tonnes) and 700,000 tonnes of raw 

materials (previous year: 800,000 tonnes) 

in the year under review. Despite the sometimes 

difficult market environment, 

Supply Chain Solutions Key Figures (in millions €) 

1 

2 

3 

4 

2 

Delivery of steel rods for the manufacture of 

seamless pipes 

Engine assembly for a manufacturer in Poland 

Material for constructing an oil pipeline in Turkmenistan 

Peripheral components for pipelines in Turkmenistan 

we achieved some significant successes, 

especially in sheet and special steels. Of 

total sales of steel products in the year 

under review, long products accounted for 

39%, flat products for 30%, semi-finished 

products for 24% and special steels and 

non-ferrous metals for 7%. 

The most important procurement market 

for our international steel activities was 

the European Union, with 32% of tonnage. 

European countries outside of the EU 

accounted for 21% of the bought-in tonnage, 

Latin America for 25%, Asia for 18% and 

Africa and the USA combined 4%. 

The most important sales market in 2005 

was once again North America, which 

bought 39% of the sales tonnage, followed 

by Latin America with 22% and EU member 

states with 19%. We sold 10% of our tonnage 

in Asia, 6% in Africa, and 4% in the other 

European countries. 

2005 2004 ∆ % 

Order intake 1,566 2,025 – 23 

Sales 1,592 1,724 – 8 

Orders on hand 380 452 – 16

3 

We were able 

to substantially 

increase our 

Automotive 

activities in 

2005 and we 

plan to continue 

to grow 

in this sector 

in the future. 

For the Automotive business, the year under 

review once again saw positive developments. 

We expanded our activities with 

existing customers and we realised projects 

with new ones. Among other things, we 

succeeded in extending our contracts with 

our client General Motors for assembly 

services over a further product life cycle 

for the Zafira model in Gliwice, Poland. 

We were commissioned by Ford to assemble 

modules for the new Ford Galaxy model at 

the existing site in Genk, Belgium. We also 

succeeding in extending our existing contracts 

to include the manufacture of the new 

Ford Mondeo, with the result that capacity 

utilisation at the site is guaranteed until 

2011. We also set up business at two new sites 

in Belgium. From 2006, we will assemble 

rear axles and suspension struts for Opel 

in Antwerp. In mid-2005, we also began 

assembling fuel tanks for Volvo in Gent – 

this is the first time we have worked for 

this company. 

Our Piping activities fell short of expectations 

in 2005 and only benefited to a limited 

extent from the upturn in investment activity 

in the oil and gas industry. While we were 

able to implement several substantial contracts 

for the supply of pipeline material to 

Iran, Turkmenistan and Russia, the deferral 

of several major orders to the year 2006 

prevented us from recording growth 

to match the previous year. Our continued 

evolution from a pure supplier into a provider 

of a wide range services for for the 



oil and gas industry is illustrated by our 

supplier agreement with our client Exxon- 

Mobil. Since the last fiscal year, we have 

handled all of the procurement for some 

areas of the company’s business and are 

responsible for supplying their production 

units with materials. 


at Supply Chain Solutions 

In the business segment Supply Chain 

Solutions, we anticipate that the order 

situation will remain very healthy in the 

coming fiscal year. In the Materials sector, 

we expect prices to remain largely stable. 

Our forecasts predict that demand for rolled 

steel in particular will remain high in the 

coming years. We are planning innovative 

concepts to increase our depth of service. 

We see great potential particularly in the 

USA, where we intend to further intensify 

our efforts. 

The future prospects for the Automotive 

sector are also positive. The most important 

challenge for the industry will be 

to continue to improve its competitive 

position. We anticipate that the automobile 

manufacturers will expand their outsourcing 

activities as a means of coping 

with cost pressure. 

As we are well structured and well positioned 

today, we will continue to pursue our 

strategy of process and quality leadership 

with a focus on high added-value services. 

We also plan to generate additional growth 

4 

29

30 



in the coming years by extending the 

breadth and depth of our service for existing 

customers. And at the same time, we aim 

to intensify our international activities, 

especially in Eastern Europe. 

In the Piping sector, we expect an improvement 

in the order situation in 2006. 

We are well positioned in the countries 

bordering the Caspian Sea as well as in 

Russia and Iran, and expect to be able to 

participate to a greater degree in the 

pending expansion and modernisation 

investments of the oil and gas industry 

in those countries. We also see increasing 

tendencies on the part of major oil and 

gas companies, and also plant operators, to 

outsource their procurement, logistic and 

quality assurance activities. 

Our status as an independent system supplier 

means that we are ideally positioned to 

meet the challenges that this trend brings 

with it. We will use the coming year to round 

off our product portfolio and to drive our 

growth forward by expanding our core 

business and our project business. 

Manufacturing sections of a ship on 

behalf of MAN Ferrostaal

Employees 



MAN Ferrostaal’s success is based to a large extent on the profound know-how of 

our employees. We therefore attach great weight to strengthening and building on this 

strength. Upgrading skills and fostering talent are key tasks of of our HR department. 

MAN Ferrostaal employed on average 4,833 

permanent employees in 2005 (previous 

year: 5,633). As at December 31, 2005, MAN 

Ferrostaal had 4,773 permanent employees 

(previous year: 4,679). This rise was due to 

the first-time inclusion of ten foreign sites. 

Of the total, 1,984 people were employed in 

the division Projects & Contracting, 2,459 

in the division Services & Logistics, and 330 

in the central departments. In the fiscal year 

2006, one of the goals we are pursuing is 

to divest ourselves of peripheral activities. 

Staff numbers will therefore decrease. 

International success calls 

for extraordinary personnel 

For an international service company like 

MAN Ferrostaal, the skills and knowledge 

of its personnel are a key factor in its 

performance and competitive success. 

In addition to wide-ranging professional 

expertise, we believe that an entrepreneurial 

attitude and the ability to think laterally 

across disciplines, and an understanding of 

other cultures are essential ingredients for 

long-term success in our highly competitive 

markets. One focal point for HR in the 

company is therefore the personal and professional 

development of our employees. We 

seek to foster this by offering a wide range 

of professional training opportunities. 

Skills as a factor for success 

We reinforce the personal skills of our personnel 

through targeted coaching measures 

and international management training 

so as to equip them to take on greater 

responsibility. To this end, we are making 

increasing use of programmes at the 

European School of Management and Technology 

and the MAN Management Academy. 

We foster the professional development of 

our personnel through an extensive range 

of further training opportunities, with 

particular focus on the fields of finance and 

law. In view of our international operations, 

language training also plays a major role. 

Structured identification 

and fostering of talents 

For key positions, we ensure long-term 

successor planning by systematically identifying 

suitable candidates either from within 

or outside the hierarchy. Through targeted 

measures such as individual coaching and 

training courses on professional, leadership 

and strategy topics, we seek to continuously 

develop the personality and skills of our 

personnel. In the year under review, we extended 

the process of potential assessment to 

include personnel employed abroad (both 

local employees and those from Germany) 

and thus broadened our pool of specialists 

and management personnel. 

Job grading at executive level 

We are the first Group division of the 

MAN Group to start grading the positions 

of executive personnel in salary bands. This 

is intended to ensure the comparability of 

salaries within the MAN Group. It will also 

improve the possibilities for job rotation 

within the MAN Group. 

31

32 



Defining of core strengths 

Our executive personnel possess tried 

and tested leadership qualities, which we 

develop using a structured system. For this 

reason, we developed a competence model 

in 2005 which defines the most important 

core strengths of our executive personnel. 

These are: personality, leadership behaviour, 

social skills, internationalism, entrepreneurial 

attitude, professional knowledge, 

and a willingness to promote change. These 

skills are key criteria in the grading of positions 

and play a major role in the potential 

assessment process. They are also a fixed 

part of the annual target agreement 

interviews. 

Performance-related pay 

Our remuneration system is based on the 

operating success of MAN AG and MAN 

Ferrostaal. Besides the weighted ROS of 

MAN Ferrostaal and the business unit 

concerned, the ROCE of MAN AG forms the 

basis for the variable pay component for our 

executive personnel. In this way, we seek to 

specifically foster cooperation throughout 

the Group. The level of the variable pay 

also depends to a considerable extent on 

personal performance. 

Strengthening our 

project management skills 

In the coming year, we will further enhance 

our core strength of “project management” 

through intensive training measures. At 

the same time, we will appoint even more 

executives with international experience 

and also increasingly recruit international 

graduates with technical degrees in order 

to ensure the long-term performance and 

effectiveness of our operating units. 

Thanks to the staff and works councils 

The Executive Board wishes to thank all the 

employees for a successful fiscal year 2005. 

In terms of profit, we were able to record 

the second-best result in the history of MAN 

Ferrostaal. This success was only possible 

thanks to the extraordinary motivation 

and efforts of our personnel. The Executive 

Board would also like to thank the members 

of the works councils for their continued 

cooperation, which was as candid and 

constructive as ever.



33

34 



Sound risk 

management 

forms the 

basis for 

our business 

activities 

Risk Management 

At MAN Ferrostaal, careful handling of 

opportunities and risks provides the basis 

for responsible corporate management and 

is a key factor in achieving our goals. We 

therefore operate a sophisticated risk 

management process to systematically 

identify and control any opportunities 

and risks that arise within the scope of our 

operating activities. This guarantees that we 

consistently take advantage of opportunities 

and that possible risks are identified, clearly 

presented and objectively assessed. Our risk 

management process also plays a role in 

providing countermeasures for risks that 

arise in the normal course of business. 

We only seize business opportunities if 

our assessment indicates that they will 

increase the value of the company and if 

the associated risks are manageable. 

Our risk management system is supplemented 

by several management and monitoring 

systems. In our strategic corporate 

planning system, we take account of 

medium-term opportunities, while our internal 

reporting system ensures appropriate 

monitoring of current opportunities and 

risks. We plan our equity requirements in 

advance as part of our annual financial 

planning. We actively control short-term 

equity planning with a revolving threemonth 

budget. These instruments ensure 

that the Executive Board is fully informed in 

good time of any business developments and, 

if required, can implement any necessary 

measures at the right time. 

Risk management as a factor for success 

Due to its international focus and diverse 

business operations, MAN Ferrostaal’s business 

activities are exposed to a number of 

risks. We address these risks with an effective 

risk management system, which forms an 

integral part of our business processes and 

is the basis for our corporate decisions. The 

standard requirements for this system are set 

out in the MAN guidelines, which apply to the 

entire MAN Group, and, in particular, in the 

MAN Risk Management handbook, which 

we have adapted to suit the requirements 

of our business activities. This contains 

binding regulations for the identification, 

evaluation and control of significant risks, 

and establishes our risk policy principles 

throughout the company.

In the future 

the risk 

situation of our 

company will 

be assessed 

at regular 

intervals by a 

risk board. 

Handling each risk on its own merit 

MAN Ferrostaal’s international focus and 

its diverse business sectors make it possible 

to serve a large number of markets. This 

is reflected in a number of very different 

risk profiles and creates a need to handle 

different risks on their own merits. We 

are able to meet this need with a decentralised 

risk management system. This 

means that risks are first identified in the 

respective company areas where the appropriate 

knowledge for the specific risks is 

available. 

Living the risk policy 

At the end of 2005, MAN Ferrostaal set up 

a “risk board” as the main supervisory and 

control authority for risk management. It 

comprises experts from the operations areas 

as well as experienced field staff. In future 

this committee will assess the risk situation 

of the company at regular intervals and will 

provide the Executive Board with a qualified 

risk and opportunity assessment together 

with a recommendation for further action. 



In addition, we streamlined the existing risk 

reporting system last year in collaboration 

with MAN AG. On the basis of a standardised 

risk catalogue, all major domestic and 

foreign business units collect and analyse 

data relating to significant risks once a quarter, 

and rate these with regard to the potential 

extent of damage and the probability of 

their occurrence. At the same time, existing 

and planned risk-reducing measures are 

identified and their effectiveness assessed. 

Significant risks to MAN Ferrostaal are 

reported in full to the Executive Board, the 

Supervisory Board and to MAN AG at regular 

intervals. Moreover, ad hoc reports are provided 

if there are any important changes to 

significant risks in the period between the 

dates scheduled for the regular reports. 

MAN AG's internal audit process is an 

important pillar of our risk management 

system. The audit process takes a critical 

look at the instruments available for risk 

management and thus contributes towards 

ensuring their appropriateness and 

efficiency. 

35

36 



We minimise 

competitive 

risks through 

a special 

partnership 

relationship 

with our 

customers. 

Areas of opportunities and risks 

Our target-driven growth and the continuous 

increase in the value of the company are 

inextricably linked with exposure to risk, 

which can have a negative effect on MAN 

Ferrostaal’s position as regards its assets, 

finances and profit. Important opportunities 

and risk areas that may have a significant 

influence on our business development 

are described below. 

Market 

MAN Ferrostaal is subject to various market 

risks. Among others, these include the global 

economic situation, which, despite rising 

prices for raw materials, experienced positive 

development overall in the fiscal year 

2005. High prices for raw materials not only 

conceal a potential risk to us, such as price 

increases, but at the same time, also offer 

opportunities. Many of our customers 

operate in industries that are enjoying a 

boom at the moment, in particular the oil 

and gas industries where, because of an 

increase in demand, numerous investments 

and infrastructure development projects 

are being planned and we want to have 

greater involvement in these. 

The pricing policy of individual competitors 

may pose risks. Due to the current weakness 

of the US dollar, competitors from the USA 

have a cost and price advantage over MAN 

Ferrostaal. We are also noting a stronger 

presence of Asian companies, which are 

perating at low prices in our markets and are 

having a negative effect on profit margins. 

We are addressing these risks by participating 

only in carefully selected tenders and 

by avoiding business that is characterised 

by a high level of competition. At the same 

time, we are expanding our unique market 

strengths, such as our project development 

activities. We are participating in certain 

projects as a minority equity partner and 

in this way are able to build up a special 

partner relationship with our customers. 

Moreover, through improved service, we 

are attempting to bind our customers to 

us more closely and through a continual 

process of improvement we are seeking to 

optimise our company’s cost structures.

Our core markets are found mainly in countries 

that are in the process of developing 

into modern and promising industrial countries. 

In these regions, we are exposed not 

only to economic risk but also to political 

risk. We limit these risks by closely observing 

developments in these regions and thus are 

usually able to anticipate market changes in 

good time. 

We currently foresee a risk in Iran due to 

the possibility of sanctions being imposed 

by the international community. Due to the 

large number of promising major projects 

that are being developed in Iran at the 

present time, MAN Ferrostaal is faced 

with the risk of poor future business 

development. The orders that have already 

been contracted are not at risk as these are 

covered by credit insurance. We are closely 

observing developments through our local 

organisation. 



Order processing 

Above all in our role as general contractor in 

the business segment Industrial Projects, we 

are exposed to various contractual risks and 

order risks. The fundamental potential for 

risk lies in the way the contract is drawn up, 

as well as in the technical and commercial 

processing of these orders, which in many 

ways are highly demanding. The risks include, 

in particular, unsatisfactory rendering 

of services by members of the consortium 

and subcontractors and technical difficulties 

during commissioning of the facilities. 

Each of these factors can lead to delays 

and have adverse consequences on costs. 

MAN Ferrostaal counters these risks with a 

range of measures. In the area of Industrial 

Projects, for example, customized project 

controlling is employeed to enable computer-assisted 

monitoring of the entire 

process throughout the order and project. 

This system ensures that risks are clearly 

visible to those responsible within the 

company at an early stage, which permits 

37

38 



Our risk 

management 

process 

ensures 

effective 

monitoring of 

projects and 

orders. 

appropriate countermeasures to be applied 

in good time. In addition to this system, 

regular project meetings are held in which 

offers and possible risks are brought before 

the Executive Board in good time and any 

subsequent action to be taken is decided 

together with the project management. We 

also limit risks by subjecting our subcontractors 

to regular, strict quality controls 

and reviews of their credit rating. Moreover, 

we work together with selected partners, 

who possess the necessary tried and tested 

procedures and technologies. 

Finances 

MAN Ferrostaal achieves 84% of its sales 

from its international business and thus is 

exposed to currency risk to a considerable 

extent. This applies in particular to the 

US dollar. We keep these risks within manageable 

boundaries by closely observing 

currency market trends worldwide and, 

if necessary, by hedging operations. 

In order to realise business deals, MAN 

Ferrostaal is often required to provide the 

financing. In this connection we are exposed 

to financial risks. We limit these risks by 

carrying out extensive checks on credit 

ratings and by cooperating closely with 

reputable banks and credit insurers. We 

operate an active financial management 

system in which we carry out factorisation 

to a limited extent. 

Human Resources 

As a service provider our business success is 

closely tied to the expertise and capabilities 

of our employees. For this reason, we also 

consider personnel risks within the scope of 

our risk management system. It deals, for 

example, with those risks that may arise due 

to a lack of suitably qualified candidates and 

the question of finding a suitable successor 

for key positions within the company. 

We are addressing the possible risk of 

insufficient qualified personnel through 

modern personnel development by way 

of regular assessments of potential and 

using these as a basis for further training 

measures. These are specially tailored to suit 

the needs of our core activities. In addition, 

we are intensifying our recruitment of 

graduates with engineering degrees in order 

to meet the steadily growing demands of 

our business. To this end, we maintain close 

contact and cooperation with renowned 

international universities. To address the 

risk of making a wrong choice, we have a 

structured successor planning process in 

place that allows us to identify and promote 

suitable candidates at an early stage. 

Outlook 

We will use 2006 to further refine and improve 

our risk management instruments. 

In the course of the current year, we will 

extend our project management system, 

which is currently employed in the business 

segment Industrial Projects, in a suitable 

form to other business activities that are 

characterised by a high level of complexity.

Top quality is 

an essential 

ingredient for 

sustainable 

success in our 

markets. 

Quality Assurance 

As an industrial services provider, we are 

obliged to offer a high degree of quality 

services in order to sustain our success and 

remain competitive in our international 

markets. The main goals of our quality 

assurance system are clear, safe business 

processes and their strict application in 

our day-to-day operations. 

In order for our customers to receive an 

impeccable product, quality must be 

guaranteed at every stage, from the suppliers 

through to final acceptance. To meet 

this requirement, our areas of operation 

have been certified under the DIN EN ISO 

9001:2000 standards. 

1 

2 

Site inspection during the construction 

of a petrochemical plant 

Pipe bridge at the M5000 methanol 

plant in Trinidad 

1 2 



Striving for perfection 

All operations and procedures in our company 

are subject to a process of continual 

improvement as standard. Through regular 

internal audits and by exploiting the improvement 

potential that is that is identified 

in these audits, we succeed not only in 

maintaining set standards of quality but 

also in constantly raising these standards. 

The focus of our quality assurance activities 

in the last fiscal year was the tighter integration 

of our foreign organisations into the 

process of mapping our procedures. 

In preparation for the upcoming certification 

renewal in 2006, we are currently re-working 

the quality assurance system for the Projects 

and Contracting division. The integration of 

existing instructions and regulations into 

newly-developed electronic workflows, which 

are part of our risk management system, 

form one of the main focal points of our 

work. At the same time, we will use this 

business year to further develop our quality 

assurance manual for use throughout the 

Group. 

39

40 

MAN Ferrostaal 

is the project 

developer of the 




Strategy and Outlook 

A clear strategy for success 

Our major goal is to create value added 

for MAN AG's shareholders. We achieve this 

by following a strategy that focuses on 

profitable growth and an increase in the 

value of the company. In doing so, we 

follow three basic principles: 

1. We focus on our core competences. 

2. We take a target-oriented approach to 

expanding our business activities. 

3. We use our internationalism to set us 

apart from our competitiors. 

Focus on core competences 

We focus our energies on what we do best. 

In the Projects area, we operate as a think 

tank and differentiate ourselves in the market 

through innovative project development, 

complex financing solutions and successful 

project and risk management. In the Service 

and Logistics area, our services make an important 

contribution to our customers’ valueadded 

chains. The organisation of logistics 

chains, the integration of systems, processoriented 

thinking and the ability to offer 

tailor-made solutions are our key strengths 

in this area. 

Concentrating on our core business means 

that we disassociate ourselves from business 

activities that do not fit our competence 

profile and which create only limited value. 

In particular, we consistently pass on cost-intensive 

engineering and assembly services to 

companies that are specialists in this area. 

Expanding our business activities 

MAN Ferrostaal has been an important 

source of equity and a reliable provider of 

high capital returns within the MAN Group 

for many years. We want to strengthen this 

position and ensure our long-term success 

by expanding our profitable and promising 

business activities. 

In our Projects business, we plan to grow our 

project management and project development 

activities. Proven business models, 

such as those that we have been using for 

years at our methanol and ammonia plants 

in Trinidad and now also in Oman, will be 

implemented in other countries and in other 

market segments. At the same time, we 

will forge ahead into new market segments 

that have the potential for high value and 

growth. We count pulp and paper as well 

as renewable energies among these. In 

both areas, we will increase our strength 

through selective acquisitions and strategic 

co-operation. 

We foresee good opportunities for growth 

in the Service and Logistics area due to our 

global positioning. We will develop our 

market position by stepping up our collaboration 

with strategic partners, in particular 

with Asian and Eastern European companies, 

and by pushing through into new market 

segments. At the same time, we will broaden 

our earnings base by systematically expanding 

our portfolio with complementary 

products and services. In addition, we will 

operate our spare parts and service business 

even more intensely than before. 

Internationalism sets us apart 

MAN Ferrostaal is an international company 

with German roots. Our global focus and 

our local know-how in over 60 countries 

have been the basis of our success over 

many years. With almost 2,000 permanent 

employees working outside of Germany – 

in other words, more than 40% of our personnel 

– we are a reliable partner for our 

customers and the most international of 

the Group divisions of MAN AG. This broad 

focus protects us against local economic 

fluctuations and allows us to offer intelligent 

services worldwide from one source. This 

allows our customers to benefit from our

MAN Ferrostaal 

is the most 

international 

division in the 


differentiated business portfolio and from 

the synergies that we create in working 

together with other divisions of the MAN 

Group. 

We gain a competitive edge by systematically 

promoting an international exchange of 

information and knowledge between our 

business units and national representations. 

At the same time, we use our international 

network and our extensive knowledge of 

countries as a service platform from which 

we can support the internationalisation of 

the MAN Group. 

The close cooperation between MAN 

Ferrostaal and MAN Commercial Vehicles 

in Latin America is a good example of how 

we support the internationalisation of our 

affiliated companies and can promote entry 

into new markets. Thanks to our joint efforts, 

we managed to open up the Mexican market 

for motor-coaches within a very short period 

of time. We are already working on follow-up 

projects in other regions of the world. 

Positive expectations for 2006 

For the current year, we assume that the 

global economic upturn will continue and 

we anticipate continued high demand for 

capital goods in our core markets in Latin 

America, Asia and Eastern Europe. In view 

of the consistently high oil and gas prices, 

we expect our partners to continue to 

demonstrate a great willingness to invest 

in infrastructure development projects 

and large industrial facilities. 



Against the backdrop of these positive 

trends, we are confident that we will be 

able to continue our successful business 

development in the current year. 

We have set ourselves high targets for 

2006. Once again, we want to increase our 

operating result and improve our key rates 

of return. In order to meet the challenge all 

business units must position themselves 

within their market segments in a way that 

they can consistently increase their value 

contribution and achieve the targeted rates 

of return. 

We will continue along the path that we 

started to follow in 2004 of resolutely 

disassociating ourselves from activities that 

cannot prove profitable in the long term. 

At the same time, we will increase our competitiveness 

by ensuring an even tighter 

alignment between the allocation of our 

financial means and market potential. 

Order intake and sales will be noticeably 

less in 2006 than in the previous fiscal 

year. This decline is due in particular to the 

new business model in our logistic services 

activities where increasingly only the value 

added which is generated by MAN Ferrostaal 

is applied. In the medium term, a large part 

of this decline will be compensated for by our 

target-oriented expansion of our Industrial 

Projects business and our service activities. 

41


EXPORTING A MODEL FOR SUCCESS 

Exporting a 

model for success 

Don't burn raw materials – turn them into profit. This is 

the principle followed by MAN Ferrostaal and its customers 

in Trinidad. Natural gas is no longer burnt off but is instead 

collected and converted into methanol and ammonia in petrochemical 

plants. Methanol is a high octane fuel and one of the 

most important processing reactants in the chemical industry, 

forming the basis of plastics, colouring agents, antifreeze, 

biodiesel and many other materials. Ammonia provides the 

most important ingredient for the production of fertilizers. 

Together with its customers, MAN Ferrostaal has been building 

and operating methanol and ammonia plants in Trinidad for 

fifteen years - with a great deal of success. The total invested 

by MAN Ferrostaal and its partners in five methanol and two 

ammonia plants in Trinidad amounts to just under US $2 billion. 

Entering into such a business is nonetheless difficult and at 

the same time requires a combination of qualifications that 

not many industrial facility constructors can claim to offer. 

There is a demand for general contractors who are capable 

of developing and managing projects, as well as designing innovative 

financial solutions based on sound risk management, 

and who are experienced providers of these services.

MAN Ferrostaal is a general contractor for the construction of methanol and ammonia plants 



43



Financial Engineering 

The initiator of the first private methanol plant in Trinidad 

was Lawrence Duprey, the owner of the largest insurance 

company in the Caribbean (CLICO – Colonial Life Insurance 

Company), who wanted to build a facility of this type with the 

German assembly company Proman. Duprey sought another 

partner, a general contractor with sound experience above all 

in the financing of industrial projects in developing countries. 

MAN Ferrostaal has been operating successfully in precisely 

this field for many years. 

Since no material collateral 

could be offered to creditors, 

MAN Ferrostaal had to develop 

a new financial model for 

this line of business. It was 

only possible to implement 

this with partners who recognised 

the potential profit to 

be gained from the project, 

who were prepared to take 

a risk and with whom there 

was a solid relationship 

based on trust – after all, the financing was based for the 

most part on assets that had not yet been created and on the 

expectation of future cash flow from the plant. 

However, all the key ingredients were present in Trinidad: low 

natural gas prices, a geographically advantageous location for 

supplying the large markets in Europe and the USA, low taxes, 

no customs barriers and a qualified local workforce. This 

allowed us to win the Kreditanstalt für Wiederaufbau (KfW) 

(Credit Institute for Reconstruction) and the credit insurer 

Hermes as partners, as in so many of our previous projects. 

The first methanol plant has been operating profitably since 

1993. Following the construction of two further methanol 

plants, planning began on the world’s largest methanol plant, 

M5000, in 2000. Methanol Holdings (Trinidad) Limited is one 

of the largest methanol producers in the world today, with a 

global market share of approximately 20%. 

“Entering into the Methanol 

business requires a combination 

of qualifications 

that not many industrial 

facility constructors can 

claim to offer.” 

Transfer 

The success in Trinidad has attracted attention in the Arab 

world. Favourable conditions for replicating the Trinidad 

model are also found in Oman: a healthy investment climate, 

an excellent infrastructure and natural gas. The Sultanate also 

offers us a strong local partner with a keen interest in investing 

in petrochemicals. April saw work begin on the construction of 

a $400 million methanol plant in the Sohar industrial region, 

250 kilometres north-west of Muscat, the capital city. 

Of great advantage to the project 

is the participation of the 

Trinidad partners in the Oman 

project. Following their positive 

experience in the Caribbean, 

they are extremely interested 

in positioning their business 

on a broader international base. 

Backing the project company 

Oman Methanol Company are 

three strong partners: Methanol 

Holdings (Trinidad) Limited, the 

Oman-based OMZEST Group and 

MAN Ferrostaal. Like the plants in Trinidad, this project is also 

financed as far as possible by the KfW credit institute with 

credit insurance from Hermes. 

As the general contractor, MAN Ferrostaal is responsible 

for the offshore part of the project, the engineering services 

and the purchase for the turnkey erection of the plant. The 

onshore part, essentially the local construction and assembly 

services, will be carried out by the Oman company Oman 

Proman Contracting & Trading LLC. The target market for 

the methanol from the MO3000 plant will be the chemical 

industries in Europe and Asia. 

High market potential 

MAN Ferrostaal has consistently expanded its project development 

based on natural gas as a source of raw materials and 

energy, and sees opportunities to construct further petrochemical 

plants in several countries. We are also extending 

our range to include more technologies and products. Finally, 

the methanol product has great market potential as a fuel for 

power plants and vehicles.

1 2 3 

1 

2 

3 

Converter at the M5000 plant 

Boiler at the methanol plant 

Reformer of the plant in Trinidad 

4 5 

Intelligent Project Development 

From concept to implementation 

MAN Ferrostaal develops profitable business 

ideas and assumes the leadership throughout 

the entire project development. The customer 

and partners are involved from the very start 

in the planning and design phase. This close 

co-operation produces successful, tailor-made 

designs. 

Reliable partnerships 

The customers and the partners form part of the 

team. MAN Ferrostaal brings together competent 

partners from the fields of technology, engineering, 

assembly and financing, and co-ordinates 

further development. At the same time, our company 

insists on the highest quality standards. 

4 

5 



An engineer from Trinidad during the construction phase 

Local workers from Trinidad were involved in the construction 

of the M5000 plant 

Financial Engineering 

A tailor-made financial solution is drawn up at an early stage for each 

tailor-made project. By limiting the risks and ensuring transparency 

and efficiency, this allows the workflow to be optimised. 

Equity shareholdings 

Together with its customers MAN Ferrostaal establishes project companies 

in the respective countries and invests in the joint projects. This 

ensures that MAN Ferrostaal is involved in every decision. 

Marketing of the Projects 

As the project developer, MAN Ferrostaal is jointly responsible for 

organising the plant operations and the product marketing. 

45



Timeline of the methanol and ammonia plants: 

1990 Work begins on the construction of the first methanol 

plant for the Caribbean Methanol Company (CMC). 

1993 The CMC plant is commissioned with an annual 

capacity of over 500,000 tonnes and work begins on 

the extension of the existing methanol plant of the 

Trinidad & Tobago Methanol Company (TTMC). 

1996 The new TTMC plant is commissioned with an annual 

capacity of more than 550,000 tonnes and work 

begins on the construction of a methanol plant for 

the Methanol IV Company (MIV). 

1998 The MIV plant is commissioned with an annual 

capacity of more than 550,000 tonnes after a 

construction period of just 20 months. 

2000 Work begins on the construction of the ammonia 

plant for the Caribbean Nitrogen Company (CNC). 

2002 The CNC plant is commissioned with an annual 

capacity of more than 640,000 tonnes and work 

begins on the construction of an ammonia plant for 

Nitrogen (2000) Unlimited (N2000). 

2003 A merger is completed between the methanol 

companies CMC, TTMC and MIV into Methanol Holdings 

(Trinidad) Limited (MHTL). Work begins on the construction 

work of the methanol plant M5000. 

2004 N2000 is commissioned. 

2005 The M5000 methanol plant for MHTL is commissioned 

with an annual capacity of more than 1.9 million tonnes. 

2005 Work begins on the construction of the MO3000 

methanol plant for the Oman Methanol Company LLC 

(OMC) on the Persian Gulf with an annual capacity of over 

one million tonnes. Completion is scheduled for 2007.

Methanol Holdings 

Trinidad is one of 

the largest methanol 

producers in the 



“The Winning Team” 

With the commissioning of the M5000 plant, Methanol 

Holdings Trinidad Ltd. (MHTL) has risen to become one 

of the largest producers of methanol worldwide. The 

company has a market share of approximately 20% of 

the global methanol trade. Lawrence Duprey, Chairman 

of MHTL, expressed his enthusiasm at the commissioning 

of the M5000 methanol plant in October 2005 in 

Point Lisas: 

“The M5000 was inherently challenging because of its size 

and scope. Given the track record of this “winning team”, 

which has successfully developed and constructed all our 

previous methanol plants, it was easy for MHTL to decide 

to give the green light to this project too. We have always 

set great store by the fact that what can be done localy in 

Trinidad should be done here. During assembly we employed 

2,500 people at the construction site. We would 

world today. 

like to acknowledge the support and co-operation of the 

government of Trinidad. It is no coincidence that the two 

largest methanol plants in the world are located here in this country. We at MHTL will retain 

our optimism and our confidence in this country. All our shareholders, too, have decided to 

invest the major part of their dividends in this country!” 

47


OPENING UP NEW MARKETS 

Opening up 

New Markets 

Countertrade 

MAN Ferrostaal has been active in international business 

for many years. In 2005, almost 85% of sales were generated 

abroad. In many countries, it is normal practice for governments 

to impose offset requirements on foreign exporters. 

Offset transactions are intended to offer advantages to the 

purchasing state and its economy. What is considered to 

be of benefit differs from country to country and from order 

to order. In many cases, MAN Ferrostaal successfully 

implemented offset transactions that have benefitted the 

population and the industry of the partner country. It is not 

uncommon for our activities to help open up new markets 

in this way – both for the customer and for us.



49

50 



A frequently used but little-known model 

According to reliable surveys, approximately 20% of world 

trade takes place within the context of offset transactions 

and this trend is growing. Thus today more than 100 countries 

have offset transactions firmly rooted in the fundamentals 

of their procurement programmes. While initially 

it was largely defence investments that came with demands 

for offset transactions, these days this trend is becoming 

more widespread in civil projects, such as the delivery of 

aircraft, the construction of port installations or other investments 

in infrastructure. 

Offset transactions allow countries to make such investments 

without incurring any great commercial or political 

risk. A classic example of an offset transaction is that within 

the scope of a certain contract, such as the construction of 

a power plant, the partner country imports goods and in 

return seeks ways of exporting goods with an equal value. 

One goal, many paths 

While offset transactions are usually very similar in their 

goals, they may take very different forms. Depending in 

terms of both time and money on the delivery transaction, 

the contractor offers additional services that are to be carried 

out as an offset transaction within a regulated framework. 

A demand that is very often made by the ordering state is 

that the contractor shall be obliged to carry out the project 

with “local content”. In other words, the contractor must 

award parts of the order received to companies in the partner 

country. This form is not only chosen on the basis of employment 

policy considerations. In the case of high-tech 

projects, a transfer of technology is often connected to the 

offset transaction, which, in the long-term, will allow the 

country placing the order to build up their own industry 

in the respective sector. 

Increasingly complex and removed from the product 

Traditional forms of offset transactions, such as barter 

(exchange deals) or buy-back agreements, are giving way 

today to increasingly complex business models, such as 

PPP models (Public Private Partnership, whereby private 

companies participate in state projects). The contractor takes 

on the role of the private partner in a public project. Offset 

transaction obligations of this type present an increasing 

challenge to all companies that wish to sell their products 

and services abroad because they demand a high level 

of flexibility, creativity and in some cases also financial 

strength. It is not uncommon for investments for the 

contractor to be required to make investments as part 

of these transactions. 

Offset transactions may also involve areas that are completely 

unrelated to the product. In return for the industrial products 

or services that the partner countries import, they receive 

support for marketing of their own products. In this case the 

offset transaction can contribute to opening up new markets 

for the company in the partner country. It thus provides a 

substantial means of support for the industry in the country 

in question. 

A core strength of MAN Ferrostaal 

Many MAN Ferrostaal projects were and are connected to obligations 

under offset transactions. Therefore the execution 

of these represents one of the core strengths of our company. 

Of particular advantage is the broad focus of the MAN Group, 

which puts us in a position where we can target and employ 

the MAN Group products and services in this connection, 

for example through the delivery of buses or trucks.



An offset transaction with the South African government: MAN Ferrostaal is supporting the local tea industry as an investment partner 

MAN Ferrostaal has played an outstanding role for many 

years for the German shipbuilding industry, which, as a partner 

of foreign national authorities, has often had to assume 

offset obligations. Based on jointly conceived offset transaction 

programmes, we have developed and worked out 

tailor-made solutions in each case. The goals are always 

directed towards benefiting the economy of the ordering 

country, whether this be by transferring know-how, through 

access to key technologies, through safeguarding and 

creating new jobs or through other advantages. 

Thus over the years we have developed into a competent 

offset transaction partner in many countries and have 

acquired an excellent reputation due to our high level of 

reliability in fulfilling these obligations. On the other hand, 

we also benefit from our offset activities because in this way 

we develop lasting partnerships in many countries, acquire 

extensive in country knowledge, and are much closer to our 

customers. 

51



Examples of Offset Transactions 

Atlantis Training Centre 

MAN Ferrostaal invested in setting up a training centre in 

South Africa as part of an offset transaction agreed with 

the South African government. Young people from the 

structurally weak region of Atlantis are to receive training 

at the centre to enable them to improve their professional 

prospects. Furthermore, the surrounding industry also uses 

the training centre for specific further training seminars. 

In addition to professional training offered in information 

technology, administration and bookkeeping, instruction 

is also given in crafts and trades such as sewing, electrical 

work, mechanics, woodwork and welding. 

Call Centres 

As an investment partner MAN Ferrostaal played a key role 

in building up call centre activities in South Africa. South 

Africa is becoming more attractive to foreign companies. 

The same time zone as central Europe, very good knowledge 

of English and an open mindset all make South Africa an 

increasingly attractive location for a call centre. More than 

1,000 new jobs were created through this offset transaction. 

Tea Plantation 

Within the scope of an offset agreement with the South 

African government, MAN Ferrostaal is supporting the 

local tea industry as an investment partner. The main aim 

is to safeguard thousands of jobs long-term. International 

experts, who are responsible for day-to-day business 

operations in the areas of management, production and 

marketing, are supporting the project. Capital involvement 

of an international partner is planned for the medium term. 

PET Recycling Plant in Johannesburg 

MAN Ferrostaal is financing the new construction of a recycling 

plant for the manufacture of synthetic granules from used PET 

containers. From a humanitarian and ecological point of view 

the project is of great importance because mainly unskilled 

workers, that is, those most in need of financial assistance, will 

take part in the organised collection of the recyclable material 

within the urban area of Johannesburg.

Modernisation of Hellenic Shipyards 

As part of the implementation of the offset transaction 

agreements with our partner country Greece, MAN 

Ferrostaal extended the shipyard of Hellenic Shipyards at 

the Skaramanga location so that the requirements for the 

production of submarines could be met. 

Heavy Goods Transporter for Hellenic Shipyards 

In collaboration with a company from southern Germany, 

MAN Ferrostaal developed a 29-axle heavy goods transporter 

specially designed for the transportation of submarines 

as part of the modernisation of Hellenic Shipyards. With a 

payload of 2,000 tonnes and the possibility of normal, cross, 

diagonal and circular driving, the vehicle optimises the shipyard’s 

productivity with its limited space. 



Chassis for Portuguese Bus Manufacturer 

Within the scope of offset transaction agreements with the 

Portuguese government, MAN Ferrostaal arranged for the 

granting of a licence from MAN Commercial Vehicles to the 

local bus manufacturer, Caetano, for the use of MAN chassis. 

The new chassis has brought about a significant improvement 

in quality, which meant the company was able to 

improve its competitive position. 

Redevelopment of a Portuguese Shipyard 

In the course of executing offset transaction agreements 

with the Portuguese government, MAN Ferrostaal supported 

the largest shipyard in the country in the commercial and 

administrative areas. The primary objective was to safeguard 

the existence of the shipyard and the jobs there. The services 

provided by MAN Ferrostaal allowed the shipyard to be 

extended and also led to an increase in its profitability 

and competitiveness. 

53



A clear competitive advantage 

For many years, offset transactions and the acceptance of 

offset obligations have been an integral part of MAN Ferrostaal’s 

activities. The company has acquired an excellent reputation 

among all partners involved because we have always managed 

to discharge our obligations reliably and on time. Over the 

years, a number of successful partnerships have grown out 

of our fulfilment of obligations as part of these offset transactions. 

This would seem to suggest they should be put to 

active use in opening up new market opportunities. Horst 

Weretecki, in charge of business development at MAN 

Ferrostaal, describes some of the possibilities. 

Offset transactions represent a large part of global trade 

and have been in operation for many years, without anyone 

knowing very much about them. Why is this? 

Weretecki: Why and how offset transactions come about is of 

no interest to a large part of the population. The important 

thing is that they do come about. Take the example of the 

tea industry in South Africa. Through the redevelopment 

measures at the plantation, which we carried out as part of 

an offset transaction, several thousand South Africans will 

be able to earn a livelihood as harvest workers. How the contracts 

were drawn up that led to this and the specific services 

we performed under the contract are not important to the 

people. What matters to them is 

that they have work. 

“We can open up new 

opportunities for the 

MAN Group through 

countertrade.” 

The same applies to the South 

African government. What counts 

here is the result, namely that due 

to the state’s activities – imposing 

offset obligations on foreign contractors 

– jobs have been created. 

Where and how we manage this is irrelevant. The lasting 

impression, however, is that if MAN Ferrostaal takes charge 

of something, then something real will come of it. And again 

this is very beneficial for us because everyone is happy to 

do business with a reliable partner. 

If this concept is so successful for the ordering state, why does 

this type of offset transaction not take place more often? 

Weretecki: The need for offset transactions exists in many 

countries and they are increasingly becoming a requirement. 

Only 20 years ago there were ten countries with formalised 

offset transaction guidelines; now there are about 100. Not 

all market players are in a position to assume obligations 

under offset transactions, in particular as non-fulfilment is 

usually penalised. 

If the penalty is set high enough, it may become expensive … 

Weretecki: Every penalty reduces profit. However, there are 

cases where the penalties for non-fulfilment of offset obligations 

constituted up to 100% of the value of the order. 

That could act as a deterrent. 

Weretecki: If it represents too large a risk for a company, then 

it will not even think of entering into such a deal. You will 

have a different attitude, however, if you have the necessary 

connections and experience and are certain that you can also 

meet all the obligations. We can accept deals that no one else 

wants to take on because of the offset obligations connected 

to them. This gives MAN Ferrostaal an important competitive 

advantage. 

If MAN Ferrostaal has been involved in 

offset transactions over so many years 

and gained so much excellent experience, 

would it not be worth offering the benefit 

of this experience to other companies? 

Weretecki: It would definitely be worth 

it. There are many companies that are 

asked to enter into offset transactions but 

they do not have the requisite knowledge and experience to 

execute them. This may well be one of the reasons why there 

are various institutionalised platforms on the subject of offset 

transaction obligations. Such institutions allow company 

representatives to discuss the topic among themselves. These 

kinds of obligations are also sometimes traded among the 

representatives there – almost like a kind of stock exchange.

Is the company thinking of offering its experience in offset 

transactions on such a trading exchange? 

Weretecki: That is certainly conceivable. As a first step, we 

want to promote ourselves within the MAN Group more 

forcefully than we have done to date. With our traditionally 

strong international focus and our 

many years of experience of offset 

transactions, we can open up new 

opportunities for all divisions 

within the MAN Group. Moreover, 

this would also be a good example 

of living the company’s philosophy. 

After all, Industrial Governance, 

the management concept of the 

MAN Group, has among others the 

goal of establishing joint practices 

to achieve greater value-added potential for the Group. 

“We want to market 

our know-how more 

actively in the future – 

both internally and 

externally.” 

What form could such co-operation with other MAN 

divisions take? 

Weretecki: In concrete terms, this could take place when designing 

an offset transaction programme by making much 

more use of the range of products and services offered by 

the MAN Group than we have done in the past. For example, 

for infrastructure projects that are listed in a country’s offset 

transaction requirement catalogue, there is no reason not 

to employ heavy goods vehicles, diesel engines or turbo 

machines from MAN. On the other hand, it also stands to 

reason that MAN Ferrostaal assumes and discharges obligations 

under offset transactions that have arisen out of a 

commercial vehicles deal. 

The possibility already existed in the past. Why have you not 

done this earlier? 

Weretecki: In the past, offset transactions were often regarded 

as a necessary evil – in some cases even in our own division. 

But we have since recognised that this is not a fair assessment 

if you consider the hidden potential. We therefore had 

to change our thinking. At MAN Ferrostaal, we now consider 

our offset transaction expertise as an entry ticket into 

markets that would possibly remain permanently closed 



to us, were it not for our willingness to enter into offset 

agreements. And why shouldn't we take the products from 

our sister companies with us along the way? We are convinced 

that there is a lot of potential here. We bring to offset 

transactions a good combination of services such as project 

development know-how coupled with 

long-standing relations at the political 

and administrative levels and with local 

industries. Our sister companies can 

make use of all this, but naturally it is 

also of interest to companies outside 

the Group too. 

So you think the company should indeed 

put its activities on the offset exchange? 

Weretecki: It would be a waste if we didn’t 

use the full extent of our expertise. In the future, we want to 

market our experience and know-how more actively than we 

have done to date, both within the MAN Group and outside 

it. We are already involved in promising talks with national 

and international companies with the goal of assuming and 

fulfilling their service obligations under offset transactions. 

55


Selected companies of the 


Status as at December 31, 2005 

MAN Ferrostaal AG, Essen - 3) 

Capital Total Sales Employees 

share assets in in at 

in % millions € millions € 31/12/2005 

1,789 1,483 726 

MAN Ferrostaal Power Industry GmbH, Essen 100 569 115 225 

MAN Ferrostaal Industrieanlagen GmbH, Geisenheim 100 268 97 202 

DSD de Venezuela, C.A., Caracas, Venezuela 100 30 41 98 

DSD Construcciones y Montajes S.A. Santiago, Chile 100 48 39 113 

MAN TAKRAF Fördertechnik GmbH, Leipzig - 1) 

98 85 369 

Intergrafica Print & Pack Pty. Ltd., Alexandria, Australia 

Graphic Systems Australasia Pty. Ltd., 

100 12 35 56 

Silverwater, Australia 100 14 20 38 

MAN Ferrostaal Incorporated, Houston, USA *) 

- 2) 

MAN Ferrostaal Industrie- und 

124 687 106 

System-Logistik GmbH, Essen *) 

MAN Ferrostaal Piping Supply GmbH, Essen, 

B.V., Hooge Zwaluwe, Netherlands and 

100 108 123 1,061 

N.V., Antwerpen, Belgium 100 52 98 91 

1) The shares are held by MAN AG, Munich 

2) The shares are held by MAN Capital Corporation, New York. 

3) 100% of shares are held indirectly and directly by MAN Aktiengesellschaft, Munich. 

*) Total assets, sales and employees inclusive of operatively managed subsidiary companies


57

Consolidated financial 

statements 

MAN Ferrostaal consolidated financial statement in accordance with IFRS, 

fiscal year 2005

Index consolidated financial statements 

60 MAN Ferrostaal Group: Income statement fiscal year 2005 

61 MAN Ferrostaal Group: Balance sheet as of 31/12/2005 

62 MAN Ferrostaal Group: Cash flow statement 2005 

63 MAN Ferrostaal Group: Changes in shareholders’ equity 2005 

64 Notes to the Group division 

64 Accounting and valuation principles 

71 Notes to the consolidated income statement 

71 (01) Sales by region 

71 (02) Other operating income 

72 (03) Other operating expenses 

72 (04) Income from investments 

72 (05) Net interest result 

73 (06) Taxes 

75 Other notes to the income statement 

76 Notes to the balance sheet 

76 (07) Intangible assets 

77 (08) Tangible assets 

78 (09) Investments 

78 (10) Inventories 

79 (11) Trade receivables 

80 (12) Other assets 

80 (13) Short-term securities, cash and cash equivalents 

81 (14) Equity 

82 (15) Financial liabilities 

82 (16) Pensions 

82 Pension plans and capital cover 

83 Financing status 

84 Expenses from pension obligations 

84 (17) Other accruals 

85 (18) Other liabilities 

85 Contingencies 

85 Other financial obligations 

86 (19) Financial derivatives and hedges 

88 Related parties 

88 Total remuneration of the Supervisory Board and the Executive Board 

90 Audit certificate of the auditor 

92 MAN Ferrostaal Group division: seven-year financial summary 

94 Our main domestic subsidiaries 


CONSOLIDATED FINANCIAL STATEMENTS 

CONTENTS 

59

60 



FINANCIAL STATEMENTS 

MAN Ferrostaal Group Income statement 

for the fiscal year 2005 

Millions € Notes 2005 2004 

Net sales (1) 2,789 3,185 

Costs of sales – 2,470 – 2,777 

Gross margin 319 408 

Other operating income (2) 149 93 

Selling expenses – 130 – 123 

General administrative expenses – 99 – 97 

Other operating expenses (3) – 200 – 197 

Income from investments in associated affiliates (4) 46 – 

Other income from investments (4) 5 – 12 

Earnings before interest and taxes 90 72 

Interest income (5) 23 19 

Interest expenses – 39 – 29 

Earnings before taxes 74 62 

Taxes (6) – 19 – 7 

Earnings after taxes 55 55 

of which minority interests – 4 – 6 

Net income after minority interests 51 49


Balance sheet as at December 31, 2005 

Assets 




Millions € Notes 31/12/2005 31/12/2004 

Intangible assets (7) 2 3 

Tangible assets (8) 149 116 

Investments in associated affiliates (9) 146 – 

Other investments (9) 28 39 

Deferred tax assets (6) 95 91 

Other non-current assets (12) 43 81 

Non-current assets 463 330 

Inventories (10) 754 690 

Trade receivables (11) 477 518 

Current tax receivables 6 10 

Other current assets (12) 137 149 

Short-term securities (13) 172 157 

Cash and cash equivalents (13) 373 462 

Other current assets 1,919 1,986 

Liabilities 

2,382 2,316 

Millions € Notes 31/12/2005 31/12/2004 

Capital stock 70 70 

Additional paid-in capital 83 83 

Reserves retained from earnings 118 75 

Equity from unrealised profits/losses – 10 

Equity of MAN Ferrostaal AG stockholders 271 238 

Minority interests 64 69 

Equity (14) 335 307 

Non-current financial liabilities (15) 13 2 

Provisions for pensions (16) 30 232 

Deferred tax liabilities (6) 51 60 

Other non-current accruals (17) 10 9 

Other non-current liabilities (18) 1 – 

Non-current liabilities and accruals 105 303 

Current financial liabilities (15) 21 123 

Trade payables 559 577 

Prepayments received 892 675 

Current tax liabilities 28 11 

Other current accruals (17) 327 212 

Other current liabilities (18) 115 108 

Current liabilities and accruals 1,942 1,706 

2,382 2,316 

61

62 




MAN Ferrostaal Group Cash flow statement 2005 

Millions € 2005 2004 

Cash and cash equivalents at start of year 462 568 

Earnings before taxes 74 62 

Current taxes – 33 – 23 

Depreciation of tangible assets, intangible assets and investments 21 34 

Changes in pension provisions 2 – 1 

Undistributed earnings from associated affiliates – 46 – 

Other non-cash expenses and income – 35 – 3 

Cash earnings – 17 69 

Changes in inventories – 38 – 256 

Changes in prepayments received 205 114 

Changes in trade receivables 109 – 7 

Changes in trade payables – 38 – 69 

Changes in other accruals 113 95 

Changes in other assets – 25 1 

Changes in other liabilities 

Elimination of result from the disposal of tangible assets, 

– 3 – 21 

intangible assets and investments – 3 – 4 

Other changes in working capital 12 18 

Cash flow from operating activities 315 – 60 

Investments in tangible and intangible assets – 31 – 15 

Purchase of investments 

Income from the disposal of tangible assets, 

– 2 – 21 

intangible assets and investments 8 22 

Cash flow from investment activities – 25 – 14 

Repayment of capital – 16 – 

Distribution of dividends – 46 – 93 

Disposal (+) and purchase (-) of short-term securities of current assets – 14 10 

Net change in financial liabilities – 108 49 

Contribution to pension fund – 205 – 

Cash flow from financing activities – 389 – 34 

Net change in cash & cash equivalents – 99 – 108 

Changes in cash and cash equivalents due to newly consolidated companies 4 4 

Effect of parity-related changes on cash and cash equivalents 6 – 2 

Cash and cash equivalents at end of period 373 462 

Composition of net liquidity as at December 31 

Cash and cash equivalents 373 462 

Short-term securities 172 157 

Financial liabilities – 34 – 125 

511 494 

Cash flow from operating activities includes interest received in the amount of € 23 million 

(previous year: € 19 million), interest expenses in the amount of € 26 million (previous year: 

€ 16 million) and income tax paid in the amount of € 10 million (previous year: € 4 million).

Millions € Equity from 

unrealised 

profits/losses 




MAN Ferrostaal Group Changes in shareholders’ equity 2005 

Capital Additional Reserves Differ- Market Minority Total 

stock paid-in retained ences valuation interest 

capital from from of 

earnings currency financial 

translation instruments 

Balance at December 31, 2003 70 83 120 0 6 52 331 

Dividend payment – 91 – 2 – 93 

Earnings after taxes 2004 49 6 55 

Currency translation effects 

Changes in unrealised 

– 3 – 2 – 5 

gains/losses 4 6 10 

All other changes 9 9 

Balance at December 31, 2004 70 83 75 0 10 69 307 

Dividend payment – 50 4 – 46 

Earnings after taxes 2005 52 – 1 4 55 

Currency translation effects 

Changes in unrealised 

31 – 10 5 26 

gains/losses 1 – 1 0 

All other changes 10 – 17 – 7 

Balance at December 31, 2005 70 83 118 – 10 10 64 335 

63

64 



NOTES 

Group of 

consolidated 

companies 

Notes 

General principles 

MAN Ferrostaal Aktiengesellschaft is a subsidiary 

of MAN Aktiengesellschaft, Munich, 

and is included in the consolidated financial 

statements of the MAN Group. 

The consolidated financial statement of 

MAN Ferrostaal Aktiengesellschaft for the 

fiscal year from January 1, to December 31, 

2005 has been prepared voluntarily in 

accordance with the International Financial 

Reporting Standards (IFRS) of the International 

Accounting Standards Board (IASB), 

London. All interpretations of the International 

Financial Reporting Interpretations 

Consolidation 

In addition to MAN Ferrostaal Aktiengesellschaft, 

the consolidated financial statements 

includes 26 domestic and 43 foreign subsidiaries 

in which MAN Ferrostaal AG controls 

the financial and business policies 

under the articles of association, by company-transfer 

agreement or by other contractual 

agreement. In almost all of these 

Number of consolidated companies 

The significant subsidiaries are presented 

as attachment to these notes “Selected companies 

of MAN Ferrostaal Group” (page 56). 

A complete list of the shareholdings of 

MAN AG will be filed with the Commercial 

Register of the Local Court of Essen. This list 

includes all subsidiaries of MAN Ferrostaal 

Aktiengesellschaft. 

Compared with the previous year, twelve 

companies have been newly included as 

consolidated companies. 

Committee (IFRIC) and the standards of the 

German Accounting Standards Committee 

(DRSC) valid for the fiscal year 2004 have 

been applied. All the standards applied have 

been accepted by the European Commission. 

The Executive Board of MAN Ferrostaal 

Aktiengesellschaft released the Group 

division's consolidated financial statements 

on February 22, 2006 for submission to the 

Supervisory Board. It is the responsibility 

of the Supervisory Board to examine the 

consolidated financial statements and to 

state whether or not it approves them. 

shareholdings, this is based on a majority 

of voting rights, held directly or indirectly 

by MAN Ferrostaal AG. In the case of Intermesa 

Trading Ltda., a Brazilian company 

in which MAN Ferrostaal AG holds a 48.5% 

stake, this is based on contractual agreements. 

Domestic Foreign Total 

Included as at December 31, 2004 24 35 59 

Included for the first time in 2005 3 9 12 

Deconsolidated in the fiscal year 2005 – 1 1 

Included as at December 31, 2005 27 43 70 

This change to the group of consolidated 

companies had only a minor impact overall 

on the assets, financial and earnings situation 

in the fiscal year 2005. 

Furthermore, three companies have been 

included in the consolidated financial statements 

as associated affiliates.

Consolidation 

principles 

Currency 

translation 

The consolidated financial statements are 

based on the financial statements of MAN 

Ferrostaal Aktiengesellschaft and its consolidated 

subsidiaries prepared according 

to the MAN AG group-wide accounting and 

valuation principles. 

Capital consolidation is based on the 

purchase method. For purchases, IFRS 3 

requires that the purchase costs of a company 

be allocated to the identifiable assets, 

debts and contingencies of the purchased 

company. The acquired assets, and in 

particular the intangible assets, must be 

reassessed for accounting purposes and, 

under certain conditions, shown at the 

current fair value. Any remaining positive 

difference between the purchase costs and 

the prorated equity is shown as goodwill and 

must be subjected to an impairment test 

either annually or at any other time should 

the need arise. Should the test indicate a 

The consolidated financial statements have 

been drawn up in euros. The functional 

currency method is used to translate the 

financial statements of companies in noneurozone 

countries. Balance sheet items are 

translated at the current rate and income 

statement items at the annual average rates. 

The average annual rate of exchange is 

calculated from the average monthly rate 

of exchange. 



NOTES 

diminution in value, impairment must be 

taken. 

The reserves earned and not distributed 

after the relevant date of the initial consolidation 

are shown in the reserves retained 

from earnings of the MAN Ferrostaal Group 

division or the minority interests. 

Minority interests held by non-group parties 

in the equity of consolidated subsidiaries are 

disclosed in a separate line within the 

Group's equity. 

Expenses, income, receivables and liabilities 

between the consolidated companies as well 

as intercompany profits from intragroup 

deliveries of inventories and from other 

non-current assets are eliminated. Deferred 

taxes are calculated for consolidation 

transactions recognised in net income. 

The change in assets, accruals and equity 

shows the value at the beginning and end 

of the fiscal year as well as the change in 

the group of consolidated companies, with 

currency conversion performed at the rate 

on the balance sheet date. Conversion for 

the other items has been done at the mean 

exchange rate over the year. Differences 

deriving from currency translation of the 

balance sheet items versus the translation 

from the previous year are recognised in 

equity only. 

The euro exchange rates of currencies of major importance for the MAN Ferrostaal Group division are as follows: 

Current rate of € 1 at Annual average rate of € 1 at 

31/12/2005 31/12/2004 2005 2004 

US dollar 1.1797 1.3621 1.2456 1.2424 

Pound sterling 0.6853 0.7051 0.6839 0.6795 

Singapore dollar 1.9628 2.2262 2.0723 2.0997 

Australian dollar 1.6109 1.7459 1.6325 1.6912 

Canadian dollar 1.3725 1.6416 1.5122 1.6162 

South African rand 7.4642 7.6897 7.8901 7.9721 

65

66 



NOTES 

Income, 

and 

expenses 

Intangible 

assets 

Valuation and accounting 

Sales are recognised as and when the products 

or goods have been delivered or the 

services rendered, in each case net after 

deduction of discounts, customer bonuses 

and allowances. Revenues from long-term 

manufacturing contracts are recognised 

in accordance with the percentage of completion 

method. For more detailed information, 

refer to the notes on customerspecific 

manufacturing contracts. 

Individually purchased intangible assets 

are capitalised at purchase cost. Intangible 

assets that are acquired as the result of a 

company acquisition are capitalised at fair 

value as at the acquisition date as from 

fiscal year 2004 according to IFRS 3. 

Intangible assets with a finite useful life are 

amortised on a straight-line basis over the 

period of their useful life. The depreciation 

period for software is three to five years. The 

amortisation of licences and similar rights 

corresponds to the contractual useful life. 

Operating expenses are recorded when 

the products or services are utilised, 

while expenses for advertising and sales 

promotion as well as other sales-related 

expenses are recognised when incurred. We 

provide for accrued warranty obligations 

when the orders are invoiced. Interest and 

other costs of debt are expensed during 

the period. 

As at December 31, 2005 and December 31, 

2004, there was no goodwill arising from 

capital consolidation. 

Pursuant to IAS 38, R&D costs are expensed, 

except for those expenses incurred for the 

development of new products in the service 

sector, which are capitalised if and when 

the technical realisation of the new development 

and its future success in the market 

have been ensured. The regular amortisation 

is performed on a straight-line basis over the 

respective expected useful life of four years.

Tangible assets 

Associated 

affiliates 

Inventories 

Tangible assets are valued at historical purchase 

or production cost, reduced by regular 

or, if appropriate, irregular depreciation. The 

production costs of internally manu-factured 

tangible assets comprise the directly attributable 

production costs as well as prorated 

indirect production costs. 

Expenses for maintenance and repairs are 

recognised in net income, insofar as they are 

not liable for disclosure in the balance sheet 

assets. Interest costs on third-party capital 

are expensed in the period in which they 

are incurred. 



NOTES 

Tangible assets are depreciated according 

to the straight-line method over their 

estimated useful lives. Impairment is taken 

on tangible assets if the recognised fair value 

of such assets falls below net book value. If 

the fair value of an asset previously written 

down rises, the asset is written up accordingly. 

Regular depreciation is taken on the basis of 

useful lives which are specified uniformly 

throughout the Group as follows: 

Buildings 20 to 50 years 

Land improvements 8 to 20 years 

Plant and machinery 5 to 15 years 

Factory and office equipment 3 to 10 years 

Associated affiliates are those shareholdings 

where MAN Ferrostaal AG exercises a 

significant influence; generally this occurs 

a significant influence, usually with voting 

rights of 20% to 50%. These are valued in 

the balance sheet according to the equity 

method. 

The first-time valuation of associated 

affiliates is based on the purchase cost. 

Inventories are stated at the purchase or 

production cost or at the lower net disposal 

value. The production costs comprise the 

directly attributable production costs as well 

as prorated fixed and variable indirect production 

costs. The fixed costs attributed are 

determined in most cases on the basis of 

a normal workload, and in all other cases 

on the actual worked, if this corresponds 

to normal utilisation. Selling and general 

For subsequent valuations, the share of 

MAN Ferrostaal AG in the profit and loss 

following the acquisition is recognised in 

the income from investments. Any other 

changes in equity are accounted for so as 

not to affect income. Intercompany profits 

from transactions between Group companies 

and associated affiliates are eliminated 

proportionally from the results of the 

associated affiliate. 

administrative expenses and interest on 

third-party capital are not capitalised. 

Raw materials and merchandise are valued 

at the average purchase cost. Inventories are 

measured at the lower net realisable value 

for slow-moving items or for obsolescence 

or reduced utilisation and for uncompleted 

contracts that involve impending losses. 

67

68 



NOTES 

Customerspecific 

manufacturing 

contracts 

Receivables 

Short-term 

securities 

Deferred taxes 

Customer-specific manufacturing contracts 

are recognised according to the percentage 

of completion method (PoC). According to 

this method the prorated net sales and costs 

of sales corresponding to the percentage of 

completion achieved as at the closing date 

are shown. This is based on the revenues 

agreed with the customer and the expected 

contractual costs. The degree of completion 

is usually determined on the basis of the 

contractual costs incurred up to the closing 

date as a proportion of the total expected 

contractual costs (“cost to cost method”). 

In certain individual cases, in particular 

those involving new and complex contracts, 

completion is determined on the basis of 

contractually agreed milestones (“milestone 

method“). The PoC-recognised contractual 

items less prepayments received are shown 

Receivables and other assets are generally 

carried at nominal value. Non-interest 

bearing and low interest receivables with a 

remaining term of more than three months 

are discounted at 5.5% p.a. Receivables with 

a high probability of being uncollectible are 

Short-term securities are specified under the 

caption “available for sale” and are carried 

at fair value; this is usually the market rate. 

Differences between purchase costs and fair 

Deferred tax assets and liabilities are recognised 

for temporary differences between the 

values in the tax and the financial statements, 

for consolidation transactions recognised in 

net income, and for tax losses carried forward. 

Deferred taxes are calculated at the tax rates 

current at the closing date; in Germany at a 

rate of 39.9%. In the previous year the rate in 

Germany was 39.4%; the difference is due to 

a higher average German municipal trade income 

tax on the domestic Group companies. 

in the balance sheet in the trade receivables 

line. 

Anticipated losses from customer-specific 

manufacturing contracts are immediately 

recognised as expenses in the full amount. 

If the result of a long-term manufacturing or 

construction contract is not yet sufficiently 

secured, the revenues are only recorded 

in the amount of the order costs incurred 

("shortened percentage of completion 

method"). The share of the result is only 

realised if and when the completion of the 

order has progressed so far that the revenues 

still to be earned and the costs still to be 

incurred can be estimated on a reliable basis. 

fully written off (specific bad-debt 

allowance). A general allowance for doubtful 

accounts on the receivables balance provides 

for the general collection risk on the basis 

of empirical data from the past. 

value are handled as not affecting earnings 

and recognised as other comprehensive 

income (OCI) within equity after duly 

accounting for deferred taxes. 

Deferred tax assets are not recognised 

unless the attendant reductions are likely to 

materialise. Deferred taxation accounts only 

for those amounts of losses carried forward 

for which taxable income sufficient for 

realising the deferred tax assets is expected 

in the future.

Pensions 

Other 

accruals 

Financial 

derivatives 

and hedges 

Pension obligations are determined using 

the actuarial projected unit credit method, 

whereby the future defined benefit obligations 

are assessed on the basis of the 

prorated benefit entitlement attained as at 

the closing date. The assessment duly takes 

into account assumptions of certain future 

development parameters that affect the 

amount of future benefits. 

Pension provisions show only that part of 

the pension obligations that were recognised 

Other accruals provide for all recognisable 

risks and unknown obligations in the 

amount of their probable occurrence. 

Accruals for outstanding costs, for impending 

losses from contracts and for other 

business obligations are assessed on the 

Financial derivatives are measured at fair 

value in accordance with IAS 39. The fair value 

of forward exchange transactions is determined 

on the basis of the forward rate as at the 

closing date for the remaining term of each 

contract in relation to the contracted forward 

rate. We determine the current fair value of 

forex options by means of generally approved 

option pricing techniques, key factors being 

the residual term, the reference interest 

rate and the current exchange rate and its 

volatility. The fair value of interest rate swaps 

is obtained by discounting the expected 

future cash flows over the remaining contractual 

term on the basis of current market 

rates and the yield curve. If their fair value is 

positive, financial derivates are shown within 

other current assets, if negative, within other 

current liabilities. 

For derivative financial instruments that 

bear a hedging relationship, the changes in 

fair value in the fiscal year are recognised in 

accordance with the underlying hedging 

relationship. 

Securing a firmly contracted underlying 

transaction, especially an uncompleted con- 



NOTES 

in the past. They are reduced by the current 

market value of the cover of the existing 

plan assets for pension obligations. The 

portion of pension obligations carried as 

liabilities and not shown in the pension 

provisions is based on actuarial profit and 

loss. Insofar as actuarial losses exceed the 

corridor limit of 10% of the cash value of 

the obligations, they are taken into account 

as an additional expense for a maximum 

period of ten years. 

basis of the obligation to be performed, 

usually in the amount of the foreseeable 

product costs still to be incurred. Accruals 

for performance in kind are not discounted 

as these are measured on the basis of 

current prices. 

tract or a customer receivable through a 

forward exchange transaction, or securing 

fixed interest-bearing receivables for 

customer financing and leasing against 

the risks of changes in interest rates are 

fair value hedges. In the case of fair value 

hedges, any change in the fair value and in 

the underlying transaction are recognised 

in the income statement. 

Cash flow hedges basically include upstream 

exchange rate hedges for future sales 

revenue from trading activities and for highprobability 

customer projects. In this case 

any changes in the fair value have no effect 

on the income statement and are recognised 

in equity from unrealised profits/losses 

after deducting deferred taxes. Hedges are 

recognised as fair value hedges at the latest 

when customer liabilities are booked. 

Any financial derivatives where the requirements 

of IAS 39 for a hedging relationship 

are not met are considered instruments held 

for trading, and for these, any differences 

from fair value are immediately and fully 

recognised in the income statement. 

69

70 



NOTES 

Estimates 

Changes to 

accounting and 

valuation 

principles and 

accounting 

requirements 

Disposals 2004, 

Call and put 

options 

The preparation of consolidated financial 

statements of the Group division requires 

assumptions or estimates for some items, 

namely for the assessment in the balance 

sheet, for the disclosure of contingent 

liabilities and for the presentation of income, 

gains, expenses and losses. This refers 

in particular to bad debt provision, the level 

of completion for customer-specific manu- 

In the fiscal year 2005, the amended IAS 24 

(related party disclosures), IAS 32 (financial 

instruments: disclosure and presentation) 

and IAS 39 (financial instruments: 

recognition and measurement) were applied 

for the first time. IAS 24 and IAS 32 have 

taken effect in additional disclosures in the 

notes. 

On December 7, 2004, MAN Ferrostaal AG 

transferred most of the steel construction 

business pooled in its DSD Steel Group GmbH 

subsidiary to the Pirson Group of Belgium. 

The sales price for a 51% shareholding 

facturing contracts, the amount of pension 

obligations and other accruals, as well as the 

estimate for deferred tax assets on losses 

carried forward. The actual values may 

deviate from these estimates. If the original 

basis for an estimate changes, the effect of 

this change is recognised in the adjusted 

item in the income statement. 

IAS 39 has increased the requirements 

on the transfer of risks for factoring. This 

means that certain cases of factoring by 

MAN Ferrostaal Group to MAN Financial 

Services are derecognised. The previous 

year's figures have been presented in a way 

as to allow comparison. 

amounted to € 10.2 million. The remaining 

49% is subject to call and put options that 

may be exercised by Pirson from 2007 and by 

MAN Ferrostaal from 2010 on the basis of a 

share valuation to be carried out at that time.

(1) Sales 

(2) Other 

operating income 

Notes to the 

income statement 

Sales by region 



NOTES 


Germany 436 490 

EU excluding Germany 249 324 

Rest of Europe 160 320 

North America 646 648 

Latin America 746 808 

Asia 378 322 

Africa 105 214 

Australia 69 59 

Sales by business segment 

2,789 3,185 


Projects & Contracting 807 1,121 

Services & Logistics 1,982 2,064 

Millions € 

2,789 3,185 


Reversal of impairment of financial investments 35 – 

Income from the release of accruals 18 10 

Gains from the release of bad debt reserve 15 – 

Gains from foreign exchange and financial instruments 

Gains from the disposal of tangible assets 

13 8 

and intangible assets 2 7 

Income from other trade business 1 1 

Miscellaneous 65 67 

149 93 

71

72 



NOTES 

(3) Other 

operating 

expenses 

(4) Income from 

investments 

(5) Net 

interest 

result 

Millions € 


Provisions for accruals 127 82 

Allowances for receivables 17 38 

Allowances for inventories 6 11 

Losses on foreign exchange and financial instruments 8 11 

Miscellaneous 42 55 

Miscellaneous includes, among other things, 

expenses for restructuring measures and 

losses from disposals of fixed assets. 

Millions € 

200 197 


Income from investments in associated affiliates 46 – 

Income from profit & loss transfer agreements 1 – 

Income from other investments 3 2 

Impairments of investments – 1 – 12 

Result from the sale of investments 2 – 2 

The income from investments includes 

income amounting to € 1 million (previous 

year: € 2 million) from associated affiliates. 

Millions € 

51 – 12 

With regard to the results from affiliated 

companies refer to Note (9) Investments. 


Other interest and similar income 23 19 

Interest and similar expenses – 26 – 16 

Interest portion of provision for pension accruals – 13 – 13 

Both interest income and interest expenses 

relate to the liquidity items included in cash 

and cash equivalents, short-term securities 

and financial liabilities. The interest income 

includes an amount of € 2 million (previous 

– 16 – 10 

year: € 6 million) received from associated 

affiliates while interest expenses include 

€ 3 million (previous year: € 2 million) from 

associated affiliates.

(6) Taxes 

The tax expenses break down 

as follows: 

Millions € 

Current taxes 



NOTES 


Germany 26 16 

Foreign 7 7 

Deferred taxes 

Germany – 9 – 15 

Foreign – 5 – 1 

For tax purposes MAN Ferrostaal 

Aktiengesellschaft is considered as part of 

MAN Aktiengesellschaft and therefore does 

not incur any direct taxpayer liabilities. 

Reconciliation of calculated to actual income tax expense 

19 7 

Current taxes include an apportionment of 

MAN AG in respect of corporate income tax and 

trade tax on income in Germany in the amount 

of € 10 million (previous year: € 9 million). 

Millions € and % 2005 % 2004 % 

Earnings before taxes 74 100.0 62 100 

Calculated income tax (39.9%; previous year: 39.4%) 30 39.9 24 39.4 

Foreign tax-rate differential – 4 – 5.1 1 1.6 

Equity accounting for associated affiliates – 17 – 23.0 – – 

Non-deductible expenses – 1 – 1.3 1 1.6 

Tax-free income 

Utilisation of loss carryovers 

– 9 – 12.0 – 20 – 32.2 

not recognised in previous years 

Non-utilisation and write-off 

– 2 – 2.7 2 3.2 

of tax loss carryovers 18 23.9 – – 

Non-allowable local foreign taxes 2 2.7 – – 

Taxes for previous years 7 9.5 – – 

Other – 5 – 6.4 – 1 – 3.2 

Actual tax expense 19 25.5 7 10.4 

Income tax was calculated by applying 

the appropriate domestic tax rate of 39.9% 

(previous year: 39.4%) as at the closing date 

to EBT. The tax rate takes into account 

municipal trade income tax (18.4%), 

corporate income tax (25%) and solidarity 

surtax (5.5%), less 4.9 percentage points for 

deductibility of municipal trade income tax 

from the corporate income tax assessment. 

The difference between the expected tax rate 

and the actual tax load ratio is, in particular, 

a result of the trade tax on earnings for do- 

mestic companies, of effects of tax losses 

carried forward, of differences in relation to 

foreign tax rates and of tax-free income. 

Total tax losses carried forward for domestic 

companies for corporate income tax and 

municipal trade income tax existed at 

€ 60 million (previous year: € 67 million), 

for foreign companies for their local taxes 

at € 2 million (previous year: € 1 million). 

Tax losses carried forward of € 122 million 

(previous year: € 55 million), with foreign 

companies accounting for € 121 million 

73

74 



NOTES 

(previous year: € 54 million), are not 

recognised due to the low probability of 

utilisation. Part of the losses carried forward 

is of fixed term and will expire by 2006. 

Deferred tax assets on the basis of tax 

losses carried forward were written off in 

the amount of € 9 million. 

Deferred taxes can be allocated to the 

following balance sheet items: 

Millions € 

Deferred tax assets 

31/12/2005 31/12/2004 

Pension accruals 11 12 

Inventories and receivables – 12 – 13 

Other accruals 33 19 

Losses carried forward 62 68 

Other 1 5 

Deferred tax liabilities 

95 91 

Non-current assets 8 9 

Inventories and receivables 26 20 

Other accruals 6 28 

Other 11 3 

51 60

Other notes to the income statement 

The cost of sales includes the following costs 

of materials: 

Millions € 



NOTES 


Expenses of raw materials, supplies and merchandise 1,800 2,050 

Cost of services purchased 192 157 

The personnel expenses break down as 

follows: 

Millions € 

On average, the Group employed 4,833 

people during the year (previous year: 5,633 

people). 

Expenses for retirement pensions not 

including expenses for the statutory social 

Leasing payments 

Leasing payments under operating lease agreements 

amounted to € 1 million (previous year: 

€ 2 million. 

1,992 2,207 


Wages and salaries 206 211 

Social security contributions and pension expenses 39 37 

Expenses for statutory social pension fund 10 12 

255 260 

pension fund amounted to €13 million 

(previous year: € 13 million) and are included 

in the respective function costs. Pension 

expenses do not include the interest portion 

contained in the period’s pension provision 


75

76 



NOTES 

(7) Intangible 

assets 

Notes to the balance sheet 

Intangible assets include concessions 

acquired by the Group, EDP software and 

similar rights and assets as well as R&D costs. 

Regular amortisation on licences, software, 

similar rights and assets and on development 

costs is included in the function costs. 

As at December 31, 2005 and December 31, 

2004, there was no goodwill arising from 

capital consolidation. 

Millions € Licences, software Development Intangible 

and similar rights costs 

capitalised 

assets 

Gross book value as at 1/1/2004 11 4 15 

Accumulated depreciation 8 2 10 

Balance at 1/1/2004 

Change in group of consolidated 

3 2 5 

Additions 

Transfers 

1 1 

Disposals – 1 – 1 

Depreciation 

Currency adjustments 

– 1 – 1 – 2 

Balance at 31/12/2004 2 1 3 

Gross book value as at 31/12/2004 10 4 14 


Balance at 1/1/2005 

Change in group of consolidated 

2 1 3 

Additions 

Transfers 

Disposals 

1 1 

Depreciation 

Currency adjustments 

– 1 – 1 – 2 

Balance at 31/12/2005 2 0 2 

Gross book value as at 31/12/2005 9 4 13 


Impairment charges are included in the 

other operating expenses.

(8) Tangible 

assets 

The regular depreciation on tangible assets 

is included in the function costs, especially 

the costs of sales. Impairment charges are 

included in the other operating expenses, 

and amounted to € 2 million (previous year: 




NOTES 

Millions € Land and Plant and Other Prepay- Tangible 

buildings machinery factory ments and assets 

and office construction 

equipment in progress 

Gross book value as at 1/1/2004 186 89 103 1 379 

Accumulated depreciation 99 66 81 246 

Balance at 1/1/2004 87 23 22 1 133 

Change in group of consolidated companies – 1 – 3 – 1 – 1 – 6 

Additions 1 4 7 2 14 

Transfers 1 – 1 0 

Disposals – 4 – 1 – 1 – 6 

Depreciation – 6 – 6 – 8 – 20 

Currency adjustments/inventory additions 1 1 

Balance at 31/12/2004 78 17 20 1 116 

Gross book value as at 31/12/2004 174 80 99 1 354 


Balance at 1/1/2005 78 17 20 1 116 

Change in group of consolidated companies 21 0 1 22 

Additions 2 22 6 30 

Transfers 1 0 – 1 0 

Disposals – 1 – 1 – 2 – 4 

Depreciation – 7 – 4 – 7 – 18 

Currency adjustments 1 1 1 3 

Balance at 31/12/2005 95 35 19 0 149 

Gross book value as at 31/12/2005 205 100 91 396 


Plots of land provide collateral for liabilities 

in the amount of € 12 million (previous year: 

none). 

77

78 



NOTES 

(9) Investments 

(10) Inventories 

Millions € 

As at January 1, 2005, CEL Consolidated 

Energy Ltd., Port of Spain, Trinidad and 

Tobago, is carried at equity as an affiliated 

company. Upon completion of the participation 

quota rearrangements in several 

companies in charge of methanol and 

ammonia plant operations, MAN Ferrostaal 

with a capital share of 44.67% exercises a 

significant influence over CEL. For its part, 

CEL holds stakes in methanol and ammonia 

companies in Trinidad. 

Taking into account all direct and indirect 

investments the share of MAN Ferrostaal in 

MHTL is calculated at 19.4%. 

Millions € 

31/12/2005 31/12/2004 

Raw materials and supplies 8 6 

Work in process and finished products 446 444 

Merchandise 140 164 

Prepayments made 160 76 

The book value of the assessed fair value inventories 

amounts to € 103 million (previous 

year: € 82 million). The expense measured 

as impairment in the fiscal year amounts to 

€ 6 million (previous year: € 11 million). 

31/12/2005 31/12/2004 

Investments in associated affiliates 146 – 

Other investments 28 39 

174 39 

CEL shows assets of € 429 million, liabilities 

of € 46 million and EBT of € 85 million. 

MAN Ferrostaal has pledged securities in the 

amount of €86 million for CEL’s liabilities. 

In addition to CEL, two other companies with 

insignificant business volume were carried at 

equity in the fiscal year 2005. 

Impairment was taken on other investments 

in the amount of € 1 million (previous year: 


754 690

(11)Trade 

receivables 

Millions € 



NOTES 

31/12/2005 31/12/2004 

Future receivables under customer-specific manufacturing contracts 36 51 

Receivables from customers 431 449 

Receivables due from associated affiliates 7 10 

Receivables due from investments 3 8 

In the case of trade receivables, the specific 

allowance for bad debt amounts to € 91 

million (previous year: € 89 million), while 

the flat allowance for doubtful accounts 

amounts to € 12 million (previous year: 


To control the risk of non-collection of 

receivables from customers, we use credit 

insurance, in particular Hermes cover in the 

Millions € 

Production costs including estimated results of 

477 518 

31/12/2005 31/12/2004 

customer-specific manufacturing and construction contracts 649 963 

Less milestones capitalised as WIP 

Future receivables due from customer-specific manufacturing 

– 24 – 9 

and construction contracts before prepayments received 625 954 

Less prepayments received thereon – 589 – 903 

36 51 

Further prepayments received in the amount 

of € 130 million (previous year: € 44 million) 

for which no manufacturing costs have yet 

been incurred, are shown under liabilities. 

case of exports. Moreover, financial institutions 

provide us with non-recourse 

factoring for a large portion of the secured 

and unsecured receivables. 

The future receivables under customerspecific 

manufacturing contracts in 

accordance with the “percentage of completion 

method” are calculated as shown 

below: 

Sales of customer-specific manufacturing 

contracts amounted to € 411 million (previous 

year: € 656 million). Orders and parts thereof 

already billed to the customer are shown as 

other receivables due from customers. 

79

80 



NOTES 

(12) Other 

assets 

(13) Short-term 

securities, 

cash and 

cash 

equivalents 

Millions € 

The other assets are disclosed in the following 

balance sheet items: 

Millions € 

31/12/2005 31/12/2004 

Other non-current assets 43 81 

Other current assets 137 149 

Millions € 

180 230 

31/12/2005 31/12/2004 

Short-term securities 172 157 

Due under intragroup financing from associated affiliates 230 321 

Cash on hand and in bank 143 141 

Included in the receivables due from financial 

transactions with associated affiliates are 

also claims and liabilities from profit and 

loss transfer agreements, dividends and tax 

contributions. 

31/12/2005 31/12/2004 

Loans and other receivables due from third parties 46 38 

Non-income tax assets 7 6 

Due from investees from intragroup finance 5 7 

Derivative financial instruments 3 35 

Sundry other assets 119 144 

Sundry other assets mainly comprise shares 

in project and operator companies as well as 

Pursuant to IAS 39, derivative financial 

instruments are market-valued. Since they 

serve hedging purposes, their positive fair 

180 230 

other domestic and foreign financial investments. 

market values contrast with decreased values 

in the balance sheet items of the underlying 

transactions. 

545 619 

Included in the receivables due from financial 

transactions with associated companies are 

receivables due from MAN AG in the amount 

of € 205 million (previous year: € 267 million). 

Short-term securities are held as liquidity 

investments, recognised at market value.

(14) Equity The capital stock of MAN Ferrostaal AG 

amounts to € 70,000,000. It is divided into 

70,000,000 shares that are indirectly and 

directly held at 100% by MAN Aktiengesellschaft, 

Munich. 

Over and above the retained earnings of 

MAN Ferrostaal AG, the reserves retained 

from earnings include the differential 

amounts booked on initial consolidation, the 

Group's share of earnings accrued by subsidiary 

companies after the date on which 

they were first consolidated, as well as the 

equity share of other consolidation transactions. 

The “other changes” contain essentially 

– over and above the other changes 

due to equity consolidation that have no 

effects on results – currency adjustments 

and changes in holdings. 

The “minority interests” relate to MAN 

TAKRAF Fördertechnik, Leipzig and MAN 

Ferrostaal Inc., Houston. The shares of these 

companies are held, respectively, by MAN AG, 

Munich, and MAN Capital Corp., New York. 

As these companies are managed de facto 

by MAN Ferrostaal AG, these are included in 

the Group division’s consolidated financial 

statement. 



NOTES 

MAN TURBO AG, Oberhausen, holds 25% of 

the shares in MAN Limited, London. 

Of the shares in Intermesa Trading Ltda., Rio 

de Janeiro, 48.5% are held by Intermarketing 

Ltda. and 3% by Jocal Ltda., both of which are 

domiciled in Rio de Janeiro. 

In accordance with the control and profit 

transfer agreement concluded with MAN 

Aktiengesellschaft, MAN Ferrostaal AG transferred 

€ 50 million of its net income during 

the fiscal year to MAN Aktiengesellschaft. 

Equity from unrealised profits/losses 

The equity from unrealised profits/losses 

covers the gains and losses in currency 

translation of foreign subsidiary equity and 

gains and loses from the measurement at fair 

market value of securities and currency and 

interest safeguarding transactions forming 

part of a cash flow hedge. 

Development of the market value measurement of financial instruments recognised in equity 

Millions € Securities Hedges Deferred 

taxes 

Total 

Balance as at December 31, 2004 

Adjustment in income through sale or 

17 – 1 – 6 10 

reclassification – 1 – 1 

Adjustment through market measurement 1 – – 1 0 

Other adjustment – 1 – – – 1 

Balance as at December 31, 2004 17 0 – 7 10 

81

82 



NOTES 

(15) Financial 

liabilities 

(16) Pensions 

Pension 

plans and 

capital cover 

Millions € 

31/12/2005 31/12/2004 

Due to banks 34 23 

Liabilities from financial transactions – 102 

Financial liabilities are shown in the following balance sheet items: 

Millions € 

34 125 

31/12/2005 31/12/2004 

Non-current financial liabilities maturing after one year 13 2 

Current financial liabilities maturing within one year 21 123 

Pension provisions break down as follows: 

Millions € 

34 125 

31/12/2005 31/12/2004 

Pensions in Germany 29 231 

Pensions abroad 1 1 

The Group’s pension scheme for employees 

of the German Group companies is based on 

contribution-based benefit commitments. 

The focus of the pension plans is to build up 

a capital that will be paid out as a lump-sum 

benefit upon retirement; in certain cases the 

money may be paid as a pension instead. The 

amount of retirement benefit is calculated 

from the sum of the annual pension allocations 

that the employee receives corresponding 

to his/her pension-related emoluments 

and his age. 

These pension plans have applied so far to 

employees who joined the company after 

July 1, 1999. In the fiscal year 2005 the pension 

entitlements of employees who joined the 

company before this cut-off date have been 

transferred to this pension system, with the 

exception of executive management. 

30 232 

During fiscal year 2005, MAN Aktiengesellschaft 

and its German subsidiaries started 

to make provision for capital cover for the 

German pension obligations. The Group 

companies involved have set up the MAN 

Pension Trust e.V. under a contractual trust 

agreement (CTA), which will manage the 

trust’s assets. MAN Ferrostaal AG and two 

further companies in the MAN Ferrostaal 

Group have paid a total amount of € 205 

million into the trust fund. 

Access to the trust’s assets is irrevocably 

denied to the Group companies and the 

assets may only be used to provide ongoing 

pension payments or to satisfy employee 

claims in the event of insolvency. Due and 

proper management and use of the trust 

assets is supervised by a trustee independent 

of the company.

Financing 

status 



NOTES 

Pension provisions included in the balance sheet are derived as follows from the value of 

obligations: 

Millions € 

Current value of pension entitlements 

31/12/2005 31/12/2004 

(under defined benefit obligations) 299 271 

Fund assets at market value – 218 – 11 

Net obligations 81 260 

Adjustment amount due to actuarial gains (+) and losses (-) – 51 – 28 

Balance sheet value as at December 31 30 232 

The following assumptions are applied 

when determining the cash value of pension 

obligations for German companies: 

Millions € 

Millions € 

31/12/2005 31/12/2004 

Discount rate 4.25 % 5.0 % 

Rate of pension progression 1.5 % 1.5 % 

Rate of compensation increase 2.5 % 2.5 % 

Anticipated income from trust assets 4.25 % – 

The biometric actuarial calculation as at 

December 31, 2005 is based on the 2005G 

mortality tables of Prof. Klaus Heubeck. The 

previous year, this was based on the 1998 

mortality tables. 

The pension obligations have developed as 

following: 

For non-German companies the assumptions 

are adjusted according to local circumstances. 

31/12/2005 31/12/2004 

Balance as at January 1 232 235 

Expenses for benefit obligations added in the fiscal year 4 4 

Interest expenses for existing claims 13 13 

Pension payments – 14 – 15 

Payment to the trust assets 

Effects from changes of Group of consolidated companies, 

– 205 – 

currency and others – – 5 

Balance as at December 31 30 232 

83

84 



NOTES 

Expenses from 

pension 

obligations 

(17) Other 

accruals 

The CTA trust fund assets is invested in 

various funds in the capital market by several 

asset managers following pre-defined invest- 

Bonds and debentures 75% - 80% 

Shares 20% - 25% 

Outside Germany the trust’s assets are invested mainly in shares. 

Expenses from pension obligations comprise the following: 

Millions € 

Millions € Balance at Change to Utilisation Provision Release Balance at 

31/12/2004 group of 

consolidated 

companies, 

currency 

31/12/2005 

Business obligations 124 – – 12 133 – 11 234 

Structural measures 19 – – 9 6 – 2 14 

Obligations to personnel 6 – – 2 3 – 7 

Other accruals 72 3 – 14 30 – 9 82 

221 3 – 37 172 – 22 337 

Disclosure in the balance sheet 

Millions € 

31/12/2005 31/12/2004 

Non-current accruals 10 9 

Current accruals 327 212 

The accruals in respect of business obligations 

comprise mainly products or services 

yet to be provided under contracts already 

invoiced and impending losses from pending 

transactions. Accruals in respect of structural 

measures comprise indemnification 

payments to employees, as well as expenses 

in connection with capacity adjustments and 

reorganisation of value creation structures. 

ment guidelines. The investment portfolio 

for the funds is structured as follows: 


Service costs 4 4 

Interest costs 13 13 

17 17 

337 221 

The obligations to personnel consist of 

future payments for anniversaries, early 

retirement and pre-retirement part-time 

working. 

The other accruals cover a range of identifiable 

special risks.

(18) Other 

liabilities 

Millions € 

Contingencies Millions € 

Other financial 

obligations 



NOTES 

31/12/2005 31/12/2004 

Liabilities to personnel 33 35 

Currency and interest hedges 21 14 

Liabilities for other taxes 11 9 

Due to investees from intragroup finance 9 13 

Remaining sundry liabilities 42 37 

The remaining sundry liabilities are shown in the following balance sheet items: 

Millions € 

Other information 

116 108 

31/12/2005 31/12/2004 

Guarantees for third-party liabilities 54 85 

Guarantees and suretyship 341 329 

Liabilities on bills – 2 

The guarantees for third-party liabilities in 

the amount of € 44 million (previous year: 

€ 53 million) are secured by the pledging of 

short-term securities. 

The contingent liabilities from guarantees 

and suretyships refer almost exclusively to 

Other financial obligations exist under 

rental and leasing agreements and under 

manufacturer leasing agreements. Future 

Millions € 

bank guarantees for trade obligations of current 

and former investees and other entities. 

Moreover, a debt owed by a consortium 

member has been guaranteed, with pledged 

securities providing additional collateral. 

payments to be made during the minimum 

period these agreements remain in force will 

fall due as follows: 

31/12/2005 31/12/2004 

Within one year 14 14 

After more than one but within five years 40 38 

After more than five years 16 37 

Financial obligations towards third parties 

from investment projects commenced were 

within the scope of ordinary day-to-day 

31/12/2005 31/12/2004 

Non-current liabilities 1 – 

Current liabilities 115 108 

116 108 

70 89 

business. Leasing agreements exist primarily 

for the leasing of land, buildings and vehicles. 

85

86 



NOTES 

(19) Financial 

derivatives 

and hedging 

strategies 

MAN Ferrostaal Group is exposed to currency 

risks for which a Group-wide risk management 

system has been implemented to identify, 

quantify and limit such risks. 

Risk management 

The companies of the MAN Ferrostaal Group 

always secure their currency risks at fair 

market conditions via the central Group 

division treasury of MAN Ferrostaal AG. 

Original (primary) and derivative financial 

instruments are used. 

Currency risk 

Any future cash flows not transacted in the 

reporting (functional) currency of a Group 

company are exposed to currency risks. 

Within the MAN Ferrostaal Group essentially all 

firm customer contracts and all the Group’s own 

purchase orders in foreign currency are hedged. 

Currencies presenting merely a minor exchange 

rate risk due to their close proximity to the euro 

Millions € 

31/12/2005 31/12/2004 

Nominal volume up to 1 year over 1 Jahr Total Total 

currencies bought 161 12 173 249 

currencies sold 353 98 451 438 

Marktwert positive negative Total Total 

currencies bought 3 – 1 2 – 14 

currencies sold – – 19 – 19 35 

As at December 31, 2005, external interest rate swaps existed in euros. 

Millions € 

Group Treasury’s risk positions are hedged 

externally with banks within predetermined 

risk limits. Hedges are contracted according 

to Group-wide uniform directives. Moreover, 

such contracting is subject to stringent 

monitoring, which is ensured in particular 

by the strict segregation of trading, settling 

and controlling duties. 

The Group’s currency risk position is regularly 

reported to the executive and supervisory 

boards. Compliance with guidelines and 

directives is checked by Internal Auditing. 

rate are hedged in isolated cases only. Equity interests 

or equity-type loans in foreign currency 

are not subject to any hedging obligation. 

External exchange rate hedges are contracted in 

the form of currency forwards or swaps. Of the 

total hedging volume as at December 31, 2005, 

the US dollar accounted for 92%, the Japanese 

yen for 5%, the Swiss franc for 2% and the 

pound sterling for 1%. 

31/12/2005 31/12/2004 

Nominal volume up to 1 year over 1 Jahr Total Total 

interest rate receiver swaps – 12 12 – 

Marktwert positive negative Total Total 

interest rate receiver swaps – – 1 – 1 –

Default risk 

The maximum loss risk from financial 

derivatives corresponds to the aggregate 

of their positive market value and thus to 

potential losses of assets that may be incurred 

if and when contractual obligations are not 

honoured by specific trading partners. 

Cash flow statement 

The cash flow statement has been prepared 

in accordance with IAS 7 and breaks down 

cash flows into those from operating, 

investing and financing activities. The effect 

of changes in the group of consolidated 

companies has been eliminated from the 

respective items. The net parity change in 

cash and cash equivalents is shown in a 

separate item. The indirect method is used 

to determine the cash flow from operating 

activities. 

In the cash flow from operating activities 

the operating expenses and income without 

cashflow effect, as well as losses or gains due 

to disposals of fixed assets, are eliminated. 

"Cash earnings" are shown separately. They 

reveal the change in cash resulting from the 

results for the year. 

The cash flow from investing activities 

reflects the cash outflow for tangible and 

intangible assets, and for investments 

including those newly consolidated in the 



NOTES 

With a view to reducing this risk, financial 

derivatives are only contracted with creditworthy 

banks within specified counterparty 

limits. 

period. Income from the sale of fixed assets 

and investments is set off. Cash and cash 

equivalents taken over in the acquisition of 

consolidated subsidiaries are deducted from 

the acquisition expenditure. 

The cash flow from financing activities comprises 

dividend payments, cash inflow from 

and outflow for securities held as liquidity 

reserve, financial liabilities redeemed or 

newly raised as well as the special allocation 

to the pension trust. Cash and cash equivalents 

comprise cash on hand and in bank, 

cheques, as well as intracompany receivables 

from intracompany financial transactions. 

The flow of funds into operating activities 

is strongly affected by the net amount of 

funds tied up in inventories, the prepayments 

received from customers and the 

trade receivables. During the fiscal year 

under review these developed as follows: 

Millions € 31/12/2005 31/12/2004 First/decon- Liquidity 

solidation/ effect 

translation 

differences/ 

neutral cash 

measurement 

Inventories 754 690 26 – 38 

Trade receivables 477 518 68 109 

Pre-payments received from customers – 892 – 675 – 12 205 

339 533 82 276 

87

88 



NOTES 

Related 

parties 

Total 

remuneration 

of the Supervisory 

Board 

and the Executive 

Board 

MAN Aktiengesellschaft holds all the shares 

in MAN Ferrostaal AG both directly and 

indirectly. Thus MAN Aktiengesellschaft 

as well as its subsidiary companies are considered 

related parties pursuant to IAS 24. 

Trade receivables in a total amount of 

€ 73 million (previous year: € 146 million) 

are due to MAN AG and its subsidiaries by 

MAN Ferrostaal AG. MAN Ferrostaal AG has 

charged MAN AG and its subsidiaries a total 

of € 14 million (previous year: € 73 million) 

for services. 

MAN Ferrostaal AG is part of the cash pooling 

with MAN AG. Depending on currency, this 

account receives interest of between 2% and 

4.5% and is valued as at December 31, 2005 


Interest income in the fiscal year was € 6 


Due to the controlling and profit & loss 

transfer agreement with MAN AG, in fiscal 

year 2005 profits in the amount of € 50 

million (previous year: € 91 million) were 

transferred. 

Furthermore, receivables for related parties 

exist in the amount of € 7 million (previous 

year: € 10 million). Related party liabilities of 

€ 12 million (previous year: € 13 million) are 

included in the Group division’s consolidated 

financial statement. 

Share-based payments 

Executive directors and managers of MAN 

companies receive a share-based payment. 

Until fiscal year 2004 this was a plan based 

on the MAN company stock appreciation 

rights (MUS), which were exercisable and 

convertible into taxable income dependent 

upon the share performance (“phantom 

stock options”). In the fiscal year 2005, the 

MUS was replaced by the MAN share programme, 

by which the beneficiary receives a 

cash allowance for the purpose of acquiring 

ordinary shares of MAN AG. 

The company uses the following MAN AG 

central services: 

Taxes 

Legal 

Financing/Cash management 

M&A 

Personnel 

Reference is made to Note (16) with regard to 

the transfer of pension obligations to MAN 

Pension Trust e.V. 

As mentioned in Note (9), MAN Ferrostaal AG 

has a stake in CEL and its subsidiaries. These 

are considered to be related parties pursuant 

to IAS 24. 

MAN Ferrostaal AG sold plants and services 

to CEL and its investees in the amount of 

€ 197 million (previous year € 433 million). 

As at December 31, 2005 receivables in the 

amount of € 16 million (previous year: € 10 

million) exist against CEL and its investees. 

Accounts due to CEL and its subsidiaries are 

included in the Group division’s consolidated 

financial statement in the amount of € 9 


All of these transactions were conducted as 

arm’s length transactions. 

MAN share programme (MAP) 

The MAN share programme (MAP) was implemented 

on July 1, 2005. Within the scope 

of the MAP, selected members of the MAN 

companies’ executive and management 

boards receive cash allowances as taxable 

income with the requirement that 50% of 

the total aggregate allowance be used to 

acquire MAN AG ordinary shares. MAN AG 

acquires and safeguards the shares centrally 

in the name of and for the account of the 

beneficiary. MAP participants have free 

access to and right of disposal of the shares

acquired after the expiration of a three-year 

retention period. During the retention 

period the shares may not be sold, nor used 

as collateral nor hedged. Upon retirement or 

through departing the MAN Group for other 

reasons, the retention period is reduced to 

one year from the date of departure. 

Total remuneration 

The total remuneration of the members of 

the supervisory board amounted to € 137,000 

(previous year: € 182,000) and those for the 

members of the executive board to € 3.700 

million (previous year: € 2.122 million), 

including € 1.445 million (previous year: 

€ 816,000) as fixed emoluments and € 1.660 

million (previous year: € 1.306 million) as 

emoluments depending on performance. 

In the variable, corporate performancerelated 

emoluments, payments under the 

MAP in the amount of € 595,000 (previous 

year: none) are not included. 

With effect as of July 1 of each of the years 

2000, 2001, 2003 and 2004, the MAN Group 

implemented stock appreciation rights plans. 

Essen, February 22, 2006 

MAN Ferrostaal Aktiengesellschaft 

The Executive Board 



NOTES 

Members of the MAN companies’ executive 

and management boards were granted stock 

appreciation rights (SARs), which after a twoyear 

qualifying period within the succeeding 

five years can or could be exercisable and 

convertible into taxable income (phantom 

stock options), subject to the MAN ordinary 

share price trend in absolute and relative 

terms. In fiscal the year 2005 expenses 

for payments in the amount of € 854,000 

(previous year: € 597,000) were incurred in 

this connection. 

The emoluments of former executive board 

members and their surviving dependants 

amounted to € 670,000 (previous year: 

€ 1.056 million). Pension obligations due 

to former executive board members and 

their dependants exist in a total amount of 

€ 7.65 million (previous year: € 8.015 million). 

The members of the supervisory board and 

the executive board are listed on pages 4 

and 5 of the Annual Report. 

89

90 



AUDIT CERTIFICATE 

Auditor report 

To MAN Ferrostaal Aktiengesellschaft 

We have audited the consolidated financial 

statements prepared by MAN Ferrostaal 

Aktiengesellschaft, Essen, comprising 

the balance sheet, the income statement, 

statement of changes in equity, cash flow 

statement and the notes to the consolidated 

financial statements, together with the 

group management report for the business 

year from January 1, to December 31, 2005. 

The preparation of the consolidated financial 

statements and the group management 

report in accordance with IFRSs, as adopted 

by the EU, are the responsibility of the 

parent company’s management. Our 

responsibility is to express an opinion 

on the consolidated financial statements 

and on the group management report 

based on our audit. 

We conducted our audit of the consolidated 

financial statements in accordance with § 317 

HGB [Handelsgesetzbuch „German Commercial 

Code“] and German generally accepted 

standards for the audit of financial statements 

promulgated by the Institut der 

Wirtschaftsprüfer (IDW). Those standards 

require that we plan and perform the audit 

such that misstatements materially affecting 

the presentation of the net assets, financial 

position and results of operations in the 

consolidated financial statements in accordance 

with the applicable financial reporting 

framework and in the group management 

report are detected with reasonable assurance. 

Knowledge of the business activities and 

the economic and legal environment of 

the Group and expectations as to possible 

misstatements are taken into account in 

the determination of audit procedures. 

The effectiveness of the accounting-related 

internal control system and the evidence 

supporting the disclosures in the consolidated 

financial statements and the group 

management report are examined primarily 

on a test basis within the framework of 

the audit. The audit includes assessing the 

annual financial statements of those entities 

included in consolidation, the determination 

of entities to be included in consolidation, 

the accounting and consolidation principles 

used and significant estimates made by 

management, as well as evaluating the overall 

presentation of the consolidated financial 

statements and group management report. 

We believe that our audit provides a reasonable 

basis for our opinion. 

Our audit has not led to any reservations. 

In our opinion, based on the findings of our 

audit, the consolidated financial statements 

comply with IFRSs, as adopted by the EU, 

and give a true and fair view of the net 

assets, financial position and results of 

operations of the Group in accordance with 

these requirements. The group management 

report is consistent with the consolidated 

financial statements and as a whole provides 

a suitable view of the Group’s position and 

suitably presents the opportunities and 

risks of future development. 

Düsseldorf, March 1, 2006 

KPMG Deutsche Treuhand-Gesellschaft 

Aktiengesellschaft 

Wirtschaftsprüfungsgesellschaft 

Wagenseil Moesta 

Auditor Auditor



91

92 



Glossary 

DRSC 

The Deutsche Rechnungslegungs Standards 

Committee (German Accounting Standards 

Committee) was set up in 1998 as an 

independent accounting body composed 

of recognised experts. 

Equity from unrealised profits/losses 

Equity from unrealised profits/losses is a 

special item within equity. It includes profits/ 

losses, in particular from the valuation of 

short-term securities and hedging activities at 

market value, that are recorded in the balance 

sheet, but not yet recognised in the results. 

Capital employed (CE) 

Capital employed covers all business property, 

plant and equipment including all balance 

sheet assets with the exception of financial 

funds and tax claims. It is reduced by deductible 

working capital, that is, all accruals 

and liabilities with the exception of financial 

liabilities, pension accruals and taxes. 

Fictitious liquid assets in the amount of 

€ 250 million have been added on. 

International Financial Reporting Standards 

(IFRS) 

Internationally harmonised and implemented 

accounting valuations and principles 

of the International Accounting Standards 

Board (IASB). The IASB is an independent, 

economic organisation of auditors and other 

recognised accounting experts from more 

than 100 countries. 

Market value 

This reflects the current fair value, that 

is, the amount at which an asset could be 

exchanged or a debt honoured between 

interested, competent and independent 

business partners who are willing to enter 

into an agreement. 

Operating result 

Key figures for the measurement and control 

of the Group division income within the 

MAN Group. MAN Ferrostaal’s operating 

results reflect earnings before interest and 

taxes. 

Percentage of Completion Method (PoC) 

An accounting method for construction 

profit and costs based on the stage of 

completion pursuant to IAS 11. It is to be 

applied to customer-specific manufacturing 

contracts for which a reliable estimate of 

total contractual revenue, the stage of completion 

and the total cost to complete the 

order can be made. A profit contribution is 

due in proportion to the stage of completion, 

even if the contract has not been fully completed 

and the customer not yet invoiced. 

Projected Unit Credit Method 

Method for the measurement of pension 

obligations pursuant to IAS 19, which, in 

addition to the legally accrued pension benefits 

and entitlements as of the closing date, 

also takes into account future anticipated 

increases in salaries and pensions. 

ROCE 

Return on capital employed, which shows the 

operating result in relation to the weighted 

average capital investment over the quarters. 

ROCE = operating result/CE

ROS 

Return on sales, which shows the operating 

result in relation to sales. ROS = operating 

result/net sales. 

WACC 

Weighted average cost of capital. For 

MAN Ferrostaal, this is fixed long-term and 

amounts to 11% before tax. The equity share 

is measured at market value. The total 

liabilities’ share includes pension accruals 

and financial debts. 

Value added 

Value added is the difference between capital 

returns (ROCE) and capital costs (WACC), 

multiplied by the amount of capital employed 

(CE). 



93

94 


Our main domestic subsidiaries 

MAN Ferrostaal Power Industry GmbH 

Hohenzollernstrasse 24 

45128 Essen/Germany 

Phone: +49. 201. 818-50 

Fax: +49. 201. 818-52 09 

MAN Ferrostaal Industieanlagen GmbH 

Industriestrasse 13 

65366 Geisenheim/Germany 

Phone: +49.6722. 501-1 

Fax: +49.6722. 501-221 

Intergrafica Print & Pack GmbH 

Druckmaschinenvertrieb 



Phone: +49. 201. 818-08 

Fax: +49. 201. 818-39 70 

MAN Ferrostaal Industrie- 

und System-Logistik GmbH 



Phone: +49. 201. 818-25 00 

Fax: +49. 201. 818-35 00 

MAN Ferrostaal Piping Supply GmbH 



Phone: +49. 201. 818-25 35 

Fax: +49.201.818-3930

MAN Ferrostaal Group division: Seven-year financial summary 

Millions € 2005 2004 2003 2002 2001 SFY2000 1) 99/00 

Orders in millions € 

Order intake 3,077 3,508 2,738 3,178 2,737 1,359 2,927 

Germany 502 524 460 441 546 280 604 

Abroad 2,575 2,984 2,278 2,737 2,191 1,079 2,323 

Sales 2,789 3,185 2,880 2,916 2,855 1,410 2,541 

Germany 436 490 502 573 636 365 598 

Abroad 2,353 2,695 2,378 2,343 2,219 1,045 1,943 

Orders on hand as at June 30/Dec. 31 2,358 2,259 2,186 2,459 2 263 2,414 2,458 

Germany 232 207 230 302 457 571 599 

Abroad 2,126 2,052 1,956 2,157 1,806 1,843 1,859 

Employees in Germany and aborad 

As at June 30/Dec. 21 – number 4,773 4,679 6,689 6,598 7,230 7,545 7,145 

Yearly average – number 4,833 5,633 7,009 6,768 7,485 7,478 7,312 

Personnel expenses per capita in € 52,665 46,149 47,995 46,706 45,898 23,410 46,195 

Investments and financing in millions € 

Investments in tangible and intangible assets 31 15 20 17 42 20 23 

Finanial investments 2 21 2 6 4 7 23 

Depreciation 21 34 33 24 26 15 25 

Cash Earnings – 17 69 65 76 90 51 64 

Key figures (%) 

Equity ratio 14.1 13.3 15.4 24.0 28.9 28.2 28.6 

Equity to fixed assets ratio 103.1 194.3 181.9 202.0 228.8 200.4 225.0 

After tax return on equity 16.4 17.9 12.1 12.2 8.8 11.8 2) 9.2 

ROS 3.2 2.3 2.5 2.5 3.7 2.6 2.7 

1) Short financial year July 1, to December 31, 2000 

2) Extrapolated linearly to 12 months 

Head of Communications at MAN Ferrostaal: 

Daniel Reinhardt 

Phone +49. 201. 8 18-24 24 

Fax +49. 201. 8 18-35 25 

daniel.reinhardt@manferrostaal.com 

This annual report was printed on a MAN Roland four-colour sheet-fed offset press, using chlorine-free 

Galaxi Supermat paper from Papier Union.

MAN Ferrostaal AG 



Phone +49. 201. 8 18-01 

Fax +49. 201. 8 18-28 22 

www.manferrostaal.com 

A member of the MAN Group

MAN Ferrostaal Annual Report 2005

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