2004 Annual Report MAN Ferrostaal AG · MAN B&W Diesel is the »birthplace« of the Diesel engine and a ... of the world’s most powerful Diesel engine ... MAN Ferrostaal Annual

Annual ReportMAN Ferrostaal AG2004

Turning Ideas into Reality

MAN FERROSTAAL GROUP€ million

2004 2003

New orders 3.508 2.738

Sales 3.185 2.880

Employees as of Dec. 31 (number) 4.679 6.689

Capital expenditures 36 22

Cash flow 69 65

Shareholders’ equity as of Dec. 31 307 331

Earnings before taxes on income 62 65

Net income 55 40

At a glance

The structure of the MAN Group...>

The Structure of the MAN Group

MAN is one of Europe´s leading engineering groups. As a systems provider employing some 62,000 people in its five key areas of Commercial Vehicles, Industrial Services, PrintingSystems, Diesel Engines and Turbomachines, MAN operates in120 countries and generates annual sales of b15 billion (2004).The MAN Group ranks among the top three suppliers in each of its markets and is a technological leader. MAN´s blue-chipshares are listed in the DAX 30.

ENGINEERING THE FUTURE.

MAN Aktiengesellschaft

Commercial VehiclesMAN Nutzfahrzeuge is one of the leading commercial vehicle manufac-turers in Europe with production plants in Germany, Austria, Poland, Turkey and South Africa.– Trucks from 7.5 to 50 t for every field of application– Buses and coaches– Vehicle, marine and industrial engines– Services for every aspect of commercial vehicles

Industrial ServicesMAN Ferrostaal is a worldwide supplier of industrial services.– Contracting: project development, project management and financing

packages for industrial plants– Industrial Equipment and Systems: delivery of machinery, ships,

transport equipment– Steel Trading and Logistics: systems and logistics services, steel trade

Printing SystemsMAN Roland Druckmaschinen is a globally leading manufacturer and system supplier for the graphic arts industry.– World market leader in web offset presses for newspaper printing

and commercial jobs– Second-largest manufacturer of sheet-fed offset presses for pub-

lishing, advertising and packaging printing– Supplier of digital offset printing systems – Integrated services and software products for all printing needs

Diesel EnginesMAN B&W Diesel is the »birthplace« of the Diesel engine and a globally leading manufacturer of large Diesel engines with works in Germany, Denmark, England and France. – World market leader for two-stroke propulsion engines and designer

of the world’s most powerful Diesel engine– Worldwide leading supplier of large four-stroke Diesel engines for

marine propulsions, power plants and railways

TurbomachinesMAN TURBO is one of the worldwide leading manufacturers and service providers for compressors and industrial turbines.– Manufacturing and erection of single machines and entire machine trains– Compressors for industrial processes– Gas and steam turbines for drive systems and power generation

COMMERCIAL VEHICLES€ million

2004 2003

Order intake 7,589 6,772

Sales 7,409 6,707

Operating profit 342 203

EBT 260 121

Employees* 33,810 34,094

INDUSTRIAL SERVICES€ million

2004 2003


Sales 3,185 2,880


EBT 62 65

Employees* 4,679 6,689

PRINTING SYSTEMS€ million

2004 2003


Sales 1,620 1,516

Operating profit 3 (26)

EBT (8) (37)


DIESEL ENGINES€ million

2004 2003


Sales 1,421 1,312


EBT 40 44


TURBOMACHINES€ million

2004 2003

Order intake 675 658

Sales 659 567


EBT 30 23


*number at 31 Dec. 2004 and 31 Dec. 2003

1 Contents

MAN Ferrostaal Annual Report 2004

02 … Supervisory Board03 … Executive Board

Executive Vice President

04 … Report of the Supervisory Board

06 … The MAN Ferrostaal Group at a Glance

08 … Management Report09 … Orders10 … Facility Construction and Contracting10 … DSD Steel Construction10 … Industrial Equipment and Systems11 … Steel Trading and Logistics11 … Earnings11 … Profit transfer11 … Asset and financial structure12 … Risk management14 … Important developments15 … Employees16 … A word of gratitude to our employees16 … Outlook

20 … MAN Ferrostaal partnership

28 … From the segments28 … Facility Construction and Contracting32 … Industrial Equipment and Systems38 … Steel Trading and Logistics

44 … Selected consolidated companies of the MAN Ferrostaal Group

46 … Consolidated financial statements for the MAN Ferrostaal Group division for the fiscal year 2004 (see separate table of contents)

80 … Our Main Subsidiaries

2

Dr.-Ing. E. h. Rudolf RupprechtChairmanMunichChairman of the Executive BoardMAN Aktiengesellschaftuntil December 31, 2004

Dipl.-Ing. Håkan SamuelssonChairmanMunichChairman of the Executive BoardMAN AktiengesellschaftSince January 01, 2005

Dr. jur. Karl-Hermann LoweVice ChairmanMunichMember of the Executive BoardAllianz Versicherungs-AG

Brigitte Amamoo*OberhausenCertified Translator

Dr.-Ing. Burckhard BergmannChairman of the Executive BoardE.ON Ruhrgas AG,Member of the Executive Board E.ON AG

Stefan Breuer*EssenAuthorised Representative

Jürgen Hahn*EssenAuthorised Representative

Karlheinz HornungMember of the Executive BoardMAN Aktiengesellschaftsince October 01, 2004

Dr. rer. pol. Klaus von MengesMülheim an der Ruhr

Klaus M. PatigFrankfurt (Main)Member of the Executive BoardCommerzbank Aktiengesellschaft

Dr.-Ing. E. h. Heinrich WeissHilchenbachChairman of the Management ofSMS GmbH, Düsseldorfuntil March 15, 2004

Dr. jur. Philipp J. ZahnMunichMember of the Executive BoardMAN Aktiengesellschaftuntil September 30, 2004

* elected by employees

Supervisory Board

3 Supervisory Board, Executive Board and Executive Vice President


Dr. jur. Matthias MitscherlichMülheim an der RuhrChairman

Jens GesinnEssenFinance, Accounting and Controlling

Helmut JuliusBottrop-KirchhellenSteel Trading and Logistics, Industrial Equipment and Systems

Dr.-Ing. Axel WippermannEssenFacility Construction and Contracting

Executive Vice President

Udo VölkerEssenProject Development Eastern Europe

Executive Board

4

In the fiscal year 2004, the Supervisory Board was continuously and comprehen-sively informed by the Executive Board of MAN Ferrostaal AG about all majorbusiness results and projects of the Company on the one hand and about thefinancial state of the MAN Ferrostaal Group on the other hand. The SupervisoryBoard was informed in writing on a quarterly basis about the current course ofbusiness. At two meetings, the Executive Board expressed its view in detail onimportant subjects, such as the future corporate strategy and opportunitiesfor growth. The committee for Executive Board and Personnel matters met once.

The annual financial statements as at December 31, 2004 of MAN FerrostaalAktiengesellschaft and the partially consolidated financial statements preparedvoluntarily along with the annual report have been audited by the auditing com-pany BDO Deutsche Warentreuhand Aktiengesellschaft, Düsseldorf, and issuedwith an unconditional audit report. Additionally, the auditor examined the riskmanagement system existing at the Company, taking account of the key areas ofexamination defined by us, and ascertained that the Executive Board has takenall required measures, particularly for setting up a system of supervision. Thesystem of early risk detection existing at the MAN Ferrostaal Group is funda-mentally suitable for detecting, at an early stage, developments jeopardising thecontinued existence of the companies.

We have approvingly taken note of the result of the audits. Following the finalresult of our own audit of the annual financial statements of MAN FerrostaalAktiengesellschaft and the annual report for the fiscal year 2004, we also have noobjections to raise. We approve the annual financial statements prepared by theExecutive Board, which are therefore adopted.

Report of the Supervisory Board

Dipl.-Ing. Håkan Samuelsson, Chairman

5 Report of the Supervisory Board


Dr.-Ing. E.h. Rudolf Rupprecht retired from his office as a member and chairmanof the Supervisory Board on December 31, 2004. In his more than 8 years aschairman of our Supervisory Board, he dedicated himself with great commit-ment to the success of the company and gave important impulses. We thank Dr.-Ing. E.h. Rudolf Rupprecht for his meritorious activities.

At an extraordinary shareholders’ meeting on December 23, 2004, Dipl.-Ing.Håkan Samuelsson was appointed as a member of the Supervisory Board of MANFerrostaal AG in place of Dr.-Ing. E.h. Rudolf Rupprecht with effect as of January 1,2005. He was subsequently elected by the Supervisory Board as its chairman.

After almost 7 years as a member of the Supervisory Board, Dr.-Ing. E.h. HeinrichWeiss resigned from office on March 15, 2004. Dr.-Ing. Burckhard Bergmann waselected onto the Supervisory Board of MAN Ferrostaal Aktiengesellschaft by theshareholders’ meeting of the same day.

Dr. jur. Philipp J. Zahn resigned from membership of the Supervisory Board onSeptember 30, 2004 after 8 years in office. At an extraordinary shareholders’meeting on September 29, 2004, Mr. Karlheinz Hornung was elected onto theSupervisory Board as successor to Dr. jur. Philipp J. Zahn with effect as of October 1, 2004.

We should like to express our thanks to Dr.-Ing. E.h. Heinrich Weiss and Dr. jur. Philipp J. Zahn for their meritorious services and great commitment tothe company.

We also thank the members of the Executive Board and all employees of theMAN Ferrostaal Group for their hard work and dedication and the employee-representatives for the businesslike and constructive collaboration in the interestof the Company.

Essen, March 10, 2005Chairman of the Supervisory Board

Håkan Samuelsson

6

The MAN Ferrostaal Group at a Glance

MAN Ferrostaal is a subsidiary of MAN Aktiengesellschaft and offers its customers

industrial services. With its three business segments of Facility Construction and

Contracting, DSD Steel Construction, Industrial Equipment & Systems and Steel

Trading and Logistics, MAN Ferrostaal is a partner to customers and suppliers

throughout the world.

Facility Construction and ContractingIn its Facility Construction and Contracting business segment, MAN Ferrostaal opera-

tes on a worldwide basis as a general contractor and as a partner in consortiums. We

specialise in the financing, planning, supply, assembly and commissioning of indus-

trial plants. Our competence lies in particular in the project development, project

management and provision of funding and marketing concepts for industrial plants.

We are also specialists in the supply of components for the chemical, natural gas and

oil industries and as well as the energy supply and manufacturing industry sectors. In

these areas, we are able to offer our customers tailor-made, supplier-independent

solutions.

DSD Steel ConstructionThe Steel Construction business focuses on engineering and project handling as well

as on assembly and maintenance services for the structural steel engineering, bridge

construction and hydraulic steelwork markets.

Industrial Equipment and SystemsThe Industrial Equipment and Systems business segment encompasses the global sale

and service of plants for the production of mechanical components, machines for the

graphical arts industry, individual machines and packing machinery as well as com-

pressors and diesel engines. A further key focus of this segment is the planning and

implementation of infrastructure projects of all kinds as well as the supply of road

and rail transport and traffic equipment.

Another important activity of this segment is the sale of naval vessels as part of the

German Naval Group. In this field, working jointly with our partner ThyssenKrupp

Marine Systems AG and in particular its HDW GmbH subsidiary, we are the world lea-

ders in the sale of conventional submarines and related offset activities. We also ope-

rate in the construction and supply of merchant vessels, ship’s equipment packages as

well as port and shipyard equipment.

7 The MAN Ferrostaal Group


Steel Trading and LogisticsThe Steel Trading and Logistics segment handles the international procurement and

marketing of steel products and non-ferrous metals, including all related trading func-

tions such as transport and financing. We also specialise in industrial services for the

planning, management, operation and control of logistical systems for the just-in-

time and just-in-sequence supply of German and foreign automotive industry manu-

facturers with steel, bought-in parts and pre-assembled systems. A further key activity

is the supply of components, pipes and piping accessories to the oil, gas and petroche-

mical industry, as well as the provision of all related services.

MAN Ferrostaal Group – Facts With around 4,700 employees in over 60 countries, we design innovative services

that are tailored to the individual needs of our customers.

As suppliers of industrial services, our special strength is in the combination of

technical and financial engineering.

We are leaders in project development, i.e. in the design and realisation of

industrial plants.

We have grown into one of Germany’s most successful and most profitable

contractors.

Together with our industry partners, we are one of the world’s biggest methanol

producers.

Our Industrial Equipment and Systems segment with its IPP GmbH subsidiary is

the largest manufacturer-independent dealer and system supplier of machines for

the graphical arts industry in the southern hemisphere.

In cooperation with ThyssenKrupp Marine Systems AG, we are the world market

leader in the field of conventional submarines.

We hold a leading position in the performance of offset transactions.

With its steel trading activities, our Steel Trading and Logistics segment ranks

among the world’s five biggest producer-independent steel trading enterprises for

the international and supra-regional market.

MAN Ferrostaal Industrie- und System-Logistik GmbH is the leading company in

Europe in the supplier-independent system business for the automotive industry.

MAN Ferrostaal recorded a positive developmentin the fiscal year 2004. Both order intake and sales substantially exceeded the levels of the previous year.

At the same time, the process of concentration onour core businesses continued, with suspension ofactivities that do not promise sustained and long-term profitability.

In light of these measures, we view the prospectsfor the year 2005 with optimism.

Management Report

8

9 Management Report


In 2004, we continued our strategy of profitable growth and uncompromising focus

on profitable fields of business. While 2003 was a year of challenges for MAN Ferrostaal,

the operating environment in 2004 was much improved, thanks to a recovery in the

global economy. The fiscal year under review was therefore more than successful for

MAN Ferrostaal, enabling us to consolidate or, in many cases, further expand our

already strong position in the most important markets.

In 2004, the intake of new orders at MAN Ferrostaal reached a record level. New

orders in the fiscal year 2004 grew by 28 %, from € 2,738 million in the previous year

to € 3,508 million.

A change in the group of consolidated companies had an additional positive effect

on the order intake level for 2004. The first-time consolidation of Intermesa Trading

Ltda., Rio de Janeiro (steel trading), contributed € 179 million to the growth in intake

of new orders. Set against this was the sale of major DSD Steel Construction activities,

which accounted for an order volume of € 94 million, so that changes in the group of

consolidated companies resulted in net growth of € 85 million in the intake of new

orders.

Sales of MAN Ferrostaal in the year under review amounted to € 3,185 million, an

increase of 11 % on the previous year (€ 2,880 million). At the end of the fiscal year

2004, orders on hand stood at € 2,259 million, compared to € 2,186 million in the

previous year (+ 3%).

10

Because of the restructuring measures carried out within the business segments in

2004, last year’s figures have been adjusted and can be compared to the figures of

the Annual Report 2003 only on a limited scale. The individual business segments of

MAN Ferrostaal developed in the fiscal year 2004 as follows:

Facility Construction and ContractingOrder intake in Facility Construction and Contracting in the year under review reached

a volume of € 844 million. This was a fall of 25 % below the level of the previous year

(€ 1,127 million). Sales were also down, from € 1,145 million in 2003 to € 888 million in

2004. As at December 31, 2004, the order books in this business segment stood at

€ 870 million, compared to € 969 million at the end of 2003.

DSD Steel ConstructionMajor activities of the Steel Construction business were sold with effect as of July 1, 2004

to the Pirson Group of Belgium. This segment recorded an order intake of € 110 million

in the year under review (previous year: € 222 million). Sales fell from € 229 million in

2003 to € 127 million last year. Orders on hand stood at € 46 million on December 31,

2004 (previous year: € 236 million). In view of the deconsolidation of DSD Steel

Construction, it will not be reported on in detail in the further course of this report.

Industrial Equipment and SystemsAt € 529 million, the intake of new orders in the Industrial Equipment and Systems

segment in 2004 was up 28 % on the previous year (€ 413 million). Sales increased in

the year under review by 2 % to € 445 million (previous year: € 436 million). Orders on

hand amounted to € 891 million on December 31, 2004, compared to € 804 million on

December 31, 2003.

11 Management Report


Steel Trading and LogisticsIn the fiscal year 2004, the intake of orders in Steel Trading and Logistics rose from

€ 977 million in the previous year to € 2,025 million, i.e. an increase of 107 %. Sales

also grew in 2004 by 61 % to € 1,725 million (previous year: € 1,070 million). On

December 31, 2004, the order books stood at € 452 million (compared to € 177 million

on December 31, 2003).

EarningsFor the fiscal year 2004, the MAN Ferrostaal Group’s consolidated earnings amounted

to € 62 million before taxes.

Profit transferOut of the net income of € 96 million achieved by MAN Ferrostaal AG, a total of

€ 91 million were transferred to MAN AG and € 5 million were allocated to reserves

retained from earnings.

Asset and financial structureThe financial standing of the MAN Ferrostaal Group remains sound. With € 69 million,

the cash earnings are at about the same high level as in the previous year (€ 65 million).

12

Because of the newly introduced balance sheet structure according to maturity (IAS 1),

prepayments received are no longer deducted from inventories, but shown on the lia-

bilities side. This results in an increase in the balance sheet total of the MAN Ferrostaal

Group of € 675 million to € 2,214 million (December 31, 2003: increase of € 586 million

to € 2,151 million). Shareholders’ equity (€ 307 million) therefore accounts for a share

of around 14 % (December 31, 2003: 15 %) of the balance sheet total of € 2,214 million.

Risk managementMAN Ferrostaal’s risk policy is aligned to our strategy of pursuing profitable growth

and increasing our operating result while at the same time avoiding risks or limiting

them to the greatest extent possible. The risk management system employed by us

is a major factor for the trust placed in the MAN Ferrostaal Group by MAN AG and

its shareholders. For this reason, active risk management is an integral part of the

planning and conduct of our business activities, and is subject to direct monitoring

by the Executive Board.

The risk management system operated at MAN Ferrostaal is closely tied to that of

MAN AG and is continuously optimised and adjusted in line with changing conditions.

It is regularly reviewed for appropriateness and effectiveness both by the internal

auditors of MAN AG and by external auditors. All major subsidiaries are included in

this process.



Because of its diversified fields of operation and its international activities, MAN

Ferrostaal is exposed to constantly changing political, legal and social circumstances.

We seek to limit this risk by keeping the political and economic environment in the

regions of our business partners under close observation and by trying to anticipate

market developments.

MAN Ferrostaal is also exposed to operating risks. These risks typically include tech-

nical difficulties or disruptions to the value added chain through problems affecting

our partners. To counter these risks, we submit our worldwide suppliers and subcon-

tractors to strict quality controls and comprehensive and regular review of their credit

standing.

One of the key competencies of MAN Ferrostaal is in the financing of major projects.

In this context, we are exposed in particular to credit and investment risks. We keep

such risks to a manageable level by making allowance for them at an early stage in our

cost calculations and by working closely with institutions such as the KfW Banking

Group or Euler Hermes Kreditversicherungs-AG. We also exclude a large part of the

risk through the terms of the contracts concluded by us.

As a result of its operating activities, MAN Ferrostaal Group is also exposed to cur-

rency, interest rate and price change risks. We manage these risks by closely observing

the worldwide financial and commodity markets, taking account of possible changes

in the exchange rate of foreign currencies at any early date in our cost calculations

and, where appropriate, hedging against risks through financial derivatives.

The development of the US Dollar as our most important trading currency and price

increases on the international commodity markets in particular, represent potential

risks. The persisting weakness of the US Dollar constitutes a not inconsiderable disad-

vantage for us in competition with companies domiciled in the US Dollar area. Addi-

tionally, rising raw material prices and transport costs are a cause for some potential

customers to defer or at least reduce their investments.

The risk management system operated by MAN Ferrostaal assists in providing the per-

sonnel and the Executive Board with full and timely information on actual and poten-

tial risks. As a consequence of our risk management policy, orders are consistently

refused by MAN Ferrostaal if the opportunities and risk they represent are not asses-

sed as being in reasonable balance.

14

Important developments

Uniform corporate design for the MAN companiesIn the course of the fiscal year under review, MAN AG updated its public image. Since

the middle of last year, all MAN companies have borne the same logo, demonstrating

that we are a group with a common history, a common vision and common goals.

At the same time, a further important change took place for MAN Ferrostaal. Since

July 1, 2004, we have operated under the name “MAN Ferrostaal Aktiengesellschaft”,

thus more strongly underscoring our membership of the MAN Group. While this

has no effect on our independence as a worldwide industrial service provider, we are

convinced that as MAN Ferrostaal, and hence as a clearly recognisable member of the

MAN Group, we will be able to position ourselves even more strongly in the competi-

tive marketplace.

Disposal of DSD Steel Construction A further major step was taken in 2004 under MAN Ferrostaal’s policy of focusing on

profitable and promising fields of activity. The major activities of DSD Steel Construction

and its subsidiaries in Germany, Luxembourg, France and Egypt were sold with effect

as of July 1, 2004 to the Pirson Group of Belgium. Altogether 1,416 employees were

affected by the sale of DSD Steel Construction. The divestment did not include DSD

Industrieanlagen GmbH and in particular its power plant activities. This company will

continue to be operated as part of the MAN Ferrostaal Group.

Employee developmentA crucial factor in the future development of MAN Ferrostaal is the performance of its

employees. Highly qualified and committed personnel are one of the preconditions

for MAN Ferrostaal’s ability to succeed as a supplier of complex industrial and logistical

services. Personnel development therefore plays a major role at our company and was

once again pursued in 2004.

To ensure our ability to match and outbid our competitors in the market, we attach

great importance to high standards in the field of personnel development. This is

reflected in our system of standardised annual staff appraisals, potential assessments

and coaching processes. Once again in the year under review, foreign personnel were

included in our management development process.



At MAN Ferrostaal, we attach great weight to international competence, professional

and personal mobility and job rotation of our employees. Consequently, we developed

a process in 2004 which will significantly enhance the exchange of knowledge and

experience between our employees.

In the field of junior staff recruitment and qualification, the main focus is on univer-

sity graduates. We used the past year to intensify our cooperation with selected uni-

versities, such as Aachen Technical University, as well as to renowned international

business schools.

Optimisation of sales activitiesIn 2004, we further improved the organisation of our international sales structure.

This particularly related to the sales activities of MAN Ferrostaal in Latin and Central

America and Asia, where we now have a more flexible, stronger and more efficient

structure. We will intensively push ahead the uncompromising orientation of the

individual activities to local market needs in the coming fiscal year.

EmployeesAt December 31, 2004, the MAN Ferrostaal total workforce numbered 4,679 employees

(previous year: 6,689). The difference being largely due to the changes arising from

divestment of the DSD Steel Construction activities.

16

A word of gratitude to our employeesThe Executive Board would like to express its gratitude to all employees for a successful

fiscal year. With their high level of commitment, they all contributed to our success

in achieving our ambitious goals. Our thanks also go to the employee’s representatives,

with whom the company was once again able to work in a spirit of constructive co-

operation and mutual trust.

OutlookFor the coming year, we expect the worldwide economic upswing to continue and there-

fore look forward to an altogether stronger willingness on the part of our customers to

invest.

In Europe, we anticipate growth on about the same level as in the past year. Also in the

coming years, the countries of Central and Eastern Europe can be expected to enjoy

high growth rates, with interesting investment opportunities. We will therefore

expand our business activities there within the scope of the given possibilities.

For the countries of the former Soviet Union, we see considerable potential, but

also continuing obstacles to investment, with the result that we expect only modest

growth there for the time being. In this region, we are concentrating our efforts

primarily on the markets of Russia, Turkmenistan, Kazakhstan and Ukraine.

In the Asian region, we are continuing to focus on South-East Asia, where we reckon

with substantial growth in future. This refers in particular to Indonesia, Thailand and

Malaysia.



18



We also anticipate a positive economic development in the Near and Middle East. The

high oil price, investments aimed at improving the infrastructure and hence also a

strong demand for machinery and industrial plants are initial indications that the

successful growth policy already in place there will continue. In view of our long-

standing presence and strong position in these markets, we hope to enjoy an above-

average share in this development.

On the African continent, we see strong potential in particular for South Africa. A

gradual improvement in the economic and political conditions in some other African

countries has also taken place. Libya is seen as one of the pioneers in this process and,

because of the lifting of the UN embargo, can be expected to experience an economic

boom. We will expand our activities there and, through infrastructure projects, contri-

bute towards the modernisation of the country. The situation is also similar in Algeria

and Angola, both of which offer great potential and where we intend to intensify our

activities in future.

We believe that in 2005, the countries of Latin America will continue on their growth

course of the last few years. We are confident of being able to profit from this positive

development, and also in the coming years will focus on the key markets of Brazil,

Chile and Venezuela.

For MAN Ferrostaal, we look forward to a good fiscal year 2005. We are optimistic to be

able to further strengthen the competitive position we have already achieved and, in

the mid-term, to also further increase the level of our earnings before taxes as recorded

in the last few years. The Executive Board of the MAN Ferrostaal Group will persist in

its strategy of ensuring a lean organisation and of focusing on business fields that

promise sustainable profitability in the future. To achieve this, we will concentrate our

efforts on building further on our proven business fields. MAN Ferrostaal will intensify

its sales partnerships with affiliated companies of the MAN Group and make best use

of the existing opportunities for growth.

20

We view our customers as partners. They are part

of our team. Mutual understanding, human warmth

and the enormous personal commitment of our

personnel on the ground build strong relationships –

and generate an infectious, motivating enthusiasm

for our projects.

Through comprehensive feasibility studies, detailed

and clearly defined processes and the greatest possible

transparency, we give our customers the security

they need.

In return, our business partners give us their trust –

the most essential prerequisite for successful project

handling.

Partnership

21 MAN Ferrostaal – Industrial ServicesTurning Ideas into Reality


22

“The partnership with MAN Ferrostaal has not only turned Trinidad &Tobago into a global player on the petrochemical market, but has alsogiven the local people jobs and outstanding prospects for their future. We are making further plans with MAN Ferrostaal.”Bob York, Yorke Structures LTD., Trinidad



The new N2000 ammonia plant in Trinidad with a capacity of 640,000 MTPY.

24

76 generally overhauled tramcars for Budapest public transport.



“76 modernised tramcars were supplied to Hungary, to the com-plete satisfaction of the Budapest public transport service. Thesevehicles will make a major contribution to fulfilling the growingmobility needs of the Hungarian capital.”Péter Vág, director, Budapest public transport, Hungary

26

“Business relations have existed between CST in Brazil and MAN Ferrostaalfor more than 20 years. We have worked together successfully on projectsfor the enlargement of smelting plants and also in the field of steel trading.MAN Ferrostaal has always shown itself to be a sound and reliable businesspartner towards CST.”Benjamin M. Baptista Filho, member of the executive board, CompanhiaSiderúrgica de Tubarão, Brazil



New blast furnace No. 2 at CST with a capacity of 1.2 million tonnes per year.

28

In our Facility Construction and Contracting busi-ness segment, we operate both as general contrac-tor and as a consortium partner in the worldwidefinancing, project development, project manage-ment, supply, construction and commissioning ofindustrial plants and facilities.

We are partners above all to the energy, steel and aluminium production and petrochemicalindustries.

We are also specialists in the supply of componentsfor the chemicals, natural gas and oil industries as well as for the energy supply sector and manu-facturing industry.

In these areas, we offer our customers tailor-made,supplier-independent solutions.

Facility Construction and Contracting

29 From the SegmentsFacility Construction and Contracting


Order situation In the year 2004, the Facility Construction and Contracting segment recorded an

intake of new orders amounting to € 844 million. This was 25 % less than in the year

2003 (€ 1,127 million). Sales fell to € 888 million, compared to € 1,145 million in the

previous year. As at December 31, 2004, the order books for the segment stood at

€ 870 million, compared to € 969 million at the close of 2003.

At the start of the fiscal year 2004, we received a contract from an Iranian customer

for the supply and installation of 56 natural gas service stations. MAN Ferrostaal,

together with its partners, is responsible for the engineering, the supply of compo-

nents and the local production of the technical equipment. We are also responsible

for supervising proper installation and commissioning as well as for training the

personnel.

Wuppertaler Stadtwerke AG placed an order with us for the turnkey expansion and

modernisation of the Barmen power and heating plant. The scope of supply under this

contract comprises the planning, supply, erection and commissioning of three gas

compressors, two gas turbines, two exhaust waste heat boilers and all the necessary

ancillary equipment.

In the year under review, we were able to put a contract for the expansion of a power

plant in Venezuela into force. This relates to the turnkey upgrade of a 300 megawatt

gas turbine power plant into a combined gas and steam turbine plant with a total out-

put on completion of 475 megawatts.

Order intake Orders on hand

FACILITY CONSTRUCTION AND CONTRACTING

2003 2004 2003 2004 2003 2004

1,127

844

1,145

888969

870

Sales

million €

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

30

MAN Ferrostaal also completed the engineering and most of the supplies for the

construction of the planned M5000 methanol plant in Trinidad. The construction

and erection is proceeding to plan. Mechanical completion and commissioning are

scheduled for the first half of 2005.

Also in Trinidad, an ammonia plant was handed over to our customer in the second

half of 2004. Together with our construction partner, Proman, and the customer’s

operating team, we succeeded in completing this plant and putting it into operation

well before the scheduled date and in a record time of less than two years. Thanks to

the early completion, our customer is able to take advantage of the currently very

favourable market conditions for the product, which is intended chiefly for the North

American market. With this second ammonia plant completed in Trinidad, we have

been able to gain an important reference for other projects in this sector.

The aluminium smelter Alscon in Ikot Abasi, Nigeria, already mentioned at this

section in the previous years could be finally accounted in the fiscal year under

review due to an agreement between the main shareholder and the customer.

In the course of last year, the enlargement of existing oil production and water

injection plants in Libya for our customer Veba Oil was able to make good progress.

As things stand at present, this lump-sum turnkey project will be completed in

mid-2005.

Additionally, it was possible for 54 turnkey water treatment facilities for CO2 removal

and manganese and iron reduction from 560,000 m3/day of fossil water for the Great

Man Made River Authority (GMRA) in Libya to be put into operation. At the present

time, 200,000 m3/day of drinking water is being treated in trial operation.

31 From the SegmentsFacility Construction and Contracting


05

01 Semi-mobile crusher with a capacity of 8,500 tonnes of copper ore per hour, Collahuasi, Chile02 N2000 Ammonia plant in Trinidad03 Modernisation of the gas and steam power and heating plant in Wuppertal-Barmen04 Enlargement of the blast furnaces at CST in Brazil05 Pumping stations for fossil groundwater from the Libyan desert06 Heavy goods transport for the Methanol M5000 contract in Trinidad – Converter during transport on the Danube

01

03

02

06

04

32

The Industrial Equipment and Systems segmentspecialises in the planning, consultancy, sale andtechnical service for machines, components andsystem lines.

In addition, we provide comprehensive advice for our customers in all matters of financing andintegration. We also provide services in connectionwith infrastructure and transport systems.

A further key activity is the supply of naval andmerchant vessels, nautical equipment and asso-ciated activities.

Industrial Equipment and Systems

33 From the SegmentsIndustrial Equipment and Systems


Order situation in Industrial Equipment and SystemsThe Industrial Equipment and Systems segment enjoyed a successful fiscal year 2004.

The intake of new orders rose to € 529 million, an increase of 28 % on the previous year

(€ 413 million). Sales were up 2 %, from € 436 million in 2003 to € 445 million in 2004.

At the end of the fiscal year 2004, orders on hand stood at € 891 million (previous

year: € 804 million). This was equivalent to an increase of 11 % over the fiscal year

2003.

Graphic Arts IndustryThe Graphic Arts Industry business received new orders worth € 187 million. This

figure was 26 % above that for the previous year of € 149 million. At € 176 million, sales

were up 18 % on the previous year’s figure of € 149 million.

The world market for printing and packing machines stabilised in the course of the

year. The trade fair “Drupa”, which took place in May 2004 and is seen as the world’s

most important indicator for the industry, provided positive impulses. Brazil and

Argentina have recently both seen a significant upturn in their markets. The growing

advertising budgets of many companies should prove a positive factor for the future.

34

01

03

01 Signalling and safety equipment for Croatian Railways02 Supply of components for buses in Mexico03 Central control panel in an electronic signalling box04 COLORMAN rotary offset newspaper printing machine from MAN Roland

02

04



The intake of new orders for the printing and packing machines business improved in

line with the positive development on the market as a whole. Altogether, we succeeded

in selling 270 printing units in the sheet-fed offset sector and 224 units of the firm of

Nilpeter A/S, Denmark, (label printing). In the agency business, orders with a total

volume of € 140 million were concluded for rotary offset machines. These included

three Colorman printing machines from our group affiliate MAN Roland Druck-

maschinen AG to the Times of India.

Among the most important sales regions during the last year were Australia and Latin

America. In Australia, we successfully implemented our strategy of operating as an

independent system supplier by offering not only machines for the pre-press, print

and post-press production stages, but now also consumption materials, such as

printing plates from the Japanese company Fuji.

Industrial Manufacturing divisionThe intake of new orders in this division in 2004 amounted to € 163 million, i.e. a

shortfall of 26 % on the previous year’s figure of € 220 million. However, sales in 2004

rose 30 % to € 164 million (previous year: € 126 million).

In the year under review, the Industrial Manufacturing business area was completely

restructured in order to take account of changes in market conditions. Unprofitable

activities were disposed of and the organisation significantly streamlined. As a result

of this restructuring, Industrial Manufacturing now focuses on system lines for in-

dustrial production, infrastructure and transport and traffic technology.

In Croatia, we were able to book a follow-up order for the supply of signalling equip-

ment and other components to our customer HZ Croatian Railways.

Additionally, we received an order from a customer in Colombia for a production

plant for denim fabrics.

In China, we were able to conclude contracts for the supply of two machining centres

for diesel engines, and in Ghana an order for a cocoa processing plant.

Our bus activities in Mexico are continuing to develop positively. These relate to the

assembly of bus chassis for our group affiliate Neoman, which are then provided with

bodies in cooperation with local partners. In the year 2004, 120 buses were sold.

36

Maritime SystemsIn the Maritime Systems division, we work in close cooperation with ThyssenKrupp

Marine Systems AG and are the worldwide sales and marketing partner for their

conventional submarines. In the merchant shipbuilding business, we independently

design and sell merchant vessels throughout the world.

This division recorded a new order intake of € 179 million. This was equivalent to

an increase of 306 % over the previous year (€ 44 million). Sales fell by 34 %, from

€ 160 million in 2003 to € 105 million in the last fiscal year.

In April 2004, after a 15-year project phase, we received a contract from the Portu-

guese government for the supply of two type 209 PN submarines (+ option for 1

vessel) powered by fuel cells. Together with our consortium partner ThyssenKrupp

Marine Systems AG, we succeeded in winning this contract against a French compe-

titor after demanding negotiations.

The decision of the Portuguese government was in large part due to our convincing

overall concept. MAN Ferrostaal offered the Portuguese government state-of-the-art

conventional submarine technology, a Eurostat-neutral financing model, plus an

offset package which reflects the wide diversity of Portuguese industry. The offset

obligations mostly comprise agency activities for the placing of contracts, technology

transfer and modernisation measures for the Portuguese shipbuilding, automotive,

defence and IT industries. Of our offset obligations which total € 1.2 billion, we had

already fulfilled 22 % as at December 31, 2004.

In the course of 2004, the Merchant Shipping business area was able to conclude a

contract with a German shipping line for two further chemical tankers and to increase

the fleet of SCOT Class tankers to 8 units. In addition, an order received in the previous

year for the construction of a 100 tonne tugboat was successfully completed. Moreover,

a further two out of the series of six 1100 TEU container vessels were delivered to the

customer.



01

01 Double-hulled SCOT (Safety Chemical Oil Tanker) Class tanker with a capacity of 8,000 tonnes02 Class 209 submarine, type1400

02

38

The Steel Trading and Logistics segment operatesthroughout the world in the trading, transportand financing of steel products and non-ferrousmetals, as well as the planning, implementationand operation of complete logistical and serviceconcepts.

Among other things, for instance, the segmentcarries out the pre-assembly of parts into com-plete modules and systems for major customersin the international automotive industry.

It also supplies pipes and piping accessories aswell as components for the oil, gas and petro-chemical industry, including all related services.

Steel Trading and Logistics

39 From the SegmentsSteel Trading and Logistics


Order situation For Steel Trading and Logistics, 2004 was the most successful year in its history. The

intake of new orders increased by 107 %, from € 977 million in the previous year to

€ 2,025 million in 2004. Sales in the year under review rose by 61 % to € 1,725 million

(previous year: € 1,070 million). As at December 31, 2004, orders on hand stood at

€ 452 million (compared to € 177 million on December 31, 2003).

The substantial growth in both new orders and sales was due to the strength of the

steel market, with considerable price increases due to the worldwide rise in demand.

The abolition of major barriers to trade and competition in the USA also contributed

to a stimulation in steel trading activities. Additionally, the stable development in our

activities in the field of MAN Ferrostaal Industrial and System Logistics and the very

good success in expanding our MAN Ferrostaal Piping Supply activities played a major

role in the positive development of this segment in the year under review.

Steel Trading divisionIn the year 2004, the worldwide output of crude steel amounted to around 1.05 billion

tonnes. This meant that the 1 billion tonne mark was exceeded for the first time ever,

continuing the growth trend of the previous years. The main driver for this develop-

ment is Asia, and in particular China, where production grew in 2004 to approx. 270

million tonnes (+23 % compared to 2003), equivalent to a world market share of 26 %.

The heavy demand from Asia and the consistently high demand for steel in the other

parts of the world resulted in global shortages of the raw materials needed for steel

production, including iron ore, coke and scrap.

40

01

03

01 Only tested quality leaves our assembly plants02 Highly motivated and working accurately just-in-time03 Just-in-time steel deliveries for the presses of the automotive industry

02



This development led to sharp price increases, with the result that in the course of the

year the prices for iron ore (+19 %), coke (+111 %) and scrap (+79 %) temporarily rose to

record levels. This all produced massive increases in the prices for steel products. The

price per tonne of hot wide strip in Europe, for instance, rose in some cases by 100 %

and in the USA by as much as 110 %. Certain products, for example shipbuilding plates,

were in some cases not available at all. Price increases on this scale in such a relatively

short time are historically unprecedented.

Our Steel Trading division was able to benefit from this positive development. The

intake of new orders in the year under review amounted to € 1,671 million. This was

equivalent to a rise of 104 % over the previous year (€ 820 million). Sales were also up

sharply, increasing by 63 % from € 910 million in 2003 to € 1,460 million in the year

under review.

Altogether, we were able to sell 3 million tonnes of steel and around 800,000 tonnes

of raw materials in 2004. An additional volume of € 886 million was moved through

agency deals. Of total steel sales in the year under review, 37 % were accounted for by

flat products, 25 % by long products and 24 % by semi-finished products. Pipes made

up another 8 % of sales, and quality steels 4 %. With 34 % of the total tonnage, the

most important procurement market for international steel trading were the Euro-

pean countries outside of the EU. The second biggest market was the EU25 with 27 %,

followed by Asia with a share of 16 %. Latin America supplied another 15 % of the ton-

nage, and North America and Africa 4 % each. The most important sales market in

2004 was once again North America, taking 37 % of the total tonnage sold. The second

most important sales markets were the EU25 and Latin America, with a share of 26 %

each. Asia bought 7 %, and Europe (excluding the EU) 4 %.

At our subsidiaries MAN Ferrostaal Inc. in the USA and MAN Ferrostaal Metals Ltd. in

Canada, the intake of new orders increased by 190 % to € 844 million, and sales by 72 %

to € 676 million.

LogisticsIn the past year, the automotive industry was once again an important pillar of the

overall European economy. In Western Europe, new car registrations numbered nearly

14.5 million in 2004, equivalent to an increase of 2 % over the previous year.

However, the weakness on the German automobile market persisted in the year under

review. At 3.3 million, the number of new vehicle registrations was only up by about 1 %

compared to 2003. Moreover, the German manufacturers once again saw their share

of the market fall slightly, especially in favour of Japanese brands. New volume models

such as the Volkswagen Golf V or Opel Astra were only partially able to fulfil the high

expectations placed in them, and had to be sold in some cases at considerable discounts.

42

Despite this weak development, MAN Ferrostaal Industrie- und System-Logistik GmbH

still had a successful fiscal year. Sales grew from € 109 million in the previous year to

€ 113 million in 2004. This was primarily due to the fact that we broadened the range

of activities at our existing locations. Additionally, we were able to cushion the effects

of the relocation of production of certain models to plants in other countries by

moving there with our own activities. Moreover, after previously declining, deliveries

from our steel stocks increased again in the previous year, to 1.7 million tonnes.

Piping Supply divisionIn 2004, the Piping Supply division succeeded in increasing its intake of new orders

by 404 % to € 242 million (previous year: € 48 million). Sales also rose by 198 % to

€ 152 million (previous year: € 51 million).

The main reason for these substantial increases in both new orders and sales was

the uncompromising concentration of our activities on promising fields of business.

Consequently, MAN Ferrostaal Piping Supply has grown from being a supplier purely

of pipes and piping accessories for petrochemical plants into a supplier of complete

pipelines, with the ability to cover all requirements for major projects. In particular,

MAN Ferrostaal Piping Supply undertakes the procurement functions on behalf of

our international customers. As a result, the division was able to win numerous new

orders in 2004 for the supply of oil and gas pipelines for the Caspian region as well as

material for the construction of complete petrochemical facilities in Iran.



01

01 Reactors destined for Banda Iman, Iran, being shipped in Antwerp 02 Rizaho power plant, China, equipped with piping material from MAN Ferrostaal Piping Supply03 MV Lena with 450-tonne converter in Japan (Moij Port) for Razi Amonia Iran04 Refinery in Rotterdam with pipes and piping accessories from MAN Ferrostaal Piping Supply

03 0402

44

1) The shares are held by MAN AG, Munich2) The shares are held by MAN Capital Corporation, New York.*) Sales and employees inclusive of operatively managed subsidiary companies

SELECTED CONSOLIDATED COMPANIES OF THE MAN FERROSTAAL GROUPValid December 31, 2004

DSD Industrieanlagen GmbH, Essen, Germany 100 121 400

MAN Ferrostaal Industrieanlagen GmbH, Geisenheim, Germany 100 213 257

DSD de Venezuela, C.A., Caracas, Venezuela 100 15 97

DSD Construcciones y Montajes S.A., Santiago, Chile 100 32 95

MAN TAKRAF Fördertechnik GmbH, Leipzig, Germany *) - 1) 123 395

Intergrafica Print & Pack Australia Pty. Ltd., Alexandria, Australia 100 30 63

Graphic Systems Australasia Pty. Ltd., Silverwater, Australia 100 19 42

Intermesa Trading Ltda., Rio de Janeiro, Brazil *) 48.5 216 32

MAN Ferrostaal Incorporated, Houston, USA *) - 2) 676 105

MAN Ferrostaal Industrie- und System-Logistik GmbH, Essen, Germany *) 100 113 1,058

MAN Ferrostaal Piping Supply GmbH, Essen

B.V., Hooge Zwaluwe, Netherlands, and N.V., Antwerpen, Belgium 100 158 77

Equity held Employees on

December 31, 2004

Sales

in million €

45


MAN Ferrostaal Consolidated Financial Statement

46

according to IFRS for the fiscal year 2004

48 … Income statement49 … Balance sheet50 … Cash flow statement51 … Statement of changes in equity

Notes52 … General principles

54 … Methods of consolidation

57 … Accounting and valuation principles

61 … Notes to the consolidated income statement

64 … Notes to the balance sheet

72 … Other information

76 … Audit certificate78 … Seven-year financial summary

47 Group division: Consolidated financial statementsContents

MAN Ferrostaal AG Annual Report 2004

Contents

48

MAN Ferrostaal Group division:Income statementfor the fiscal year from January 01 to December 31, 2004

million €

Notes 2004 2003

Net sales (1) 3,185 2,880

Costs of sales – 2,777 – 2,545

Gross margin 408 335

Other operating income (2) 93 80

Selling expenses – 123 – 139

General administrative expenses – 97 – 105

Other operating expenses (3) – 197 – 107

Other income from investments (4) – 12 9

Net interest result (5) – 10 – 8

Earnings before tax 62 65

Income taxes (6) – 7 – 25

Net income 55 40

Minority interests – 6 – 1

Net income after minority interests 49 39

49 Group division: Consolidated financial statementsFinancial statements


MAN Ferrostaal Group division:Balance sheet as at December 31, 2004

ASSETSmillion €

Notes Dec. 31, 2004 Dec. 31, 2003

Intangible assets (7) 3 5

Tangible assets (8) 116 133

Financial assets (9) 4 4

Other investments (9) 35 40

Deferred tax assets (6) 91 89

Other non-current assets (12) 81 60

Non-current assets 330 331

Inventories (10) 690 469

Trade receivables (11) 416 475

Income tax receivables 10 18

Other current assets (12) 149 126

Short-term securities (13) 157 164

Cash and cash equivalents (13) 462 568

Current assets 1,884 1,820

2,214 2,151

LIABILITIESmillion €

Notes Dec. 31, 2004 Dec. 31, 2003

Capital stock 70 70

Additional paid-in capital 83 83

Reserves retained from earnings 75 120

Equity from unrealised profits/losses 10 6

Equity of MAN Ferrostaal AG shareholder 238 279

Minority interests 69 52

Equity (14) 307 331

Non-current financial liabilities (15) 2 2

Pension accruals (16) 232 235

Deferred tax liabilities (6) 60 68

Income tax liabilities 11 7

Other non-current accruals (17) 9 13

Non-current liabilities and accruals 314 325

Current financial liabilities (15) 21 21

Trade payables 577 652

Prepayments received 675 586

Other current accruals (17) 212 108

Other current liabilities (18) 108 128

Current liabilities and accruals 1,593 1,495

2,214 2,151

50

MAN Ferrostaal Group division:cash flow statement 2004

million €

2004 2003

Cash and cash equivalents at beginning of year 568 544

Earnings before tax 62 65

Statuory taxes – 23 – 39

Depreciation of tangible assets,

intangible assets and investments 34 33

Changes in pension accruals – 1 6

Other noncash expenses and income – 3 –

Cash earnings 69 65

Changes in inventories – 256 123

Changes in prepayments received 114 19

Changes in trade receivables 47 – 27

Changes in trade payables – 69 82

Changes in other accruals 95 5

Change in other assets 1 27

Change in other liabilities – 21 – 36

Elimination of result from the disposal of tangible assets,

intangible assets and investments – 4 – 13

Other changes in working capital 18 – 12

Flow/Outflow of funds in/from operating activities – 6 233

Investments in tangible and intangible assets – 15 – 20

Purchase of investments – 21 – 2

Income from the disposal of tangible assets,

intangible assets and investments 22 25

Cash outflow/inflow from investment activities – 14 3

Repayment of capital – – 40

Distribution of dividends – 93 – 60

Disposal (+) and purchase (-) of short-term securities 10 – 1

Redemption of financial liabilities – 5 – 115

Cash used in financing activities – 88 – 216

Net change in cash & cash equivalents – 108 20

Changes in cash and cash equivalent due to changed

consolidated companies 4 4

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

Cash and cash equivalents at end of period 462 568

Composition of net liquidity on December 31

Cash and cash equivalents 462 568

Short-term securities 157 164

Financial liabilities – 23 – 23

596 709

51 Group division: Consolidated financial statementsFinancial statements


MAN Ferrostaal Group division:Statement of changes in equity 2004

million €

Balance at December 31, 2002 70 83 151 – 11 95 410

Repayment of capital – 40 – 40

Net income 2003 39 1 40

Withdrawal from reserves retained

from earnings – 21 21 –

Transfer of earnings – 60 – 60

Exchange rate effects – 6 – 4 – 10

Changes in unrealised gains/losses – 5 – 5

All other changes – 4 – 4


Net income 2004 49 6 55

Withdrawal from reserves retained

from earnings – 42 42 –

Transfer of earnings – 91 – 2 – 93

Exchange rate effects – 3 – 2 – 5

Changes in unrealised gains/losses 4 6 10

All other changes 9 9


Capital stock Additional

paid-in

capital

Reserves

retained

from

earnings

Net

earnings

Equity from

unrealised

profits/losses

Minority

interests

Total

52

Notes

General principlesMAN Ferrostaal Aktiengesellschaft is a subsidiary company of MAN Aktiengesellschaft,

Munich, and is included in the financial statements of the MAN Group.

The present consolidated financial statements of the MAN Ferrostaal Group for the fiscal

year from January 1 to December 31, 2004 have been prepared on a voluntary basis. The

financial statements are in compliance with the International Financial Reporting Stan-

dards (IFRS) being applicable at the balance sheet date. They comprise the International

Accounting Standards (IAS) and the new International Financial Reporting Standards

(IFRS) of the International Accounting Standards Board (IASB), London. The version of the

IFRS in force on December 31, 2004 has been applied. The following new or revised IFRS

have been applied prematurely as at December 31, 2004: IFRS 2 (Share-based Payment),

IFRS 3 (Business Combinations), IFRS 5 (Non-current Assets Held for Sale and Discontinued

Operations). We have also applied the amended IAS 36 (Impairment of Assets), IAS 38

(Intangible Assets) as well as standards amended under the Improvement Project, namely

IAS 1 (Presentation of Financial Statements), IAS 2 (Inventories), IAS 8 (Accounting Policies,

Changes in Accounting Estimates and Errors), IAS 10 (Events after the Balance Sheet Date),

IAS 16 (Property, Plant and Equipment), IAS 17 (Leases), IAS 21 (Effects of Changes in For-

eign Exchange Rates) and IAS 27 (Consolidated and Separate Financial Statements). All

interpretations of the International Financial Reporting Interpretations Committee (IFRIC)

valid for the fiscal year 2004 as well as former interpretations of the Standing Interpreta-

tions Committee (SIC) have been applied. Except for IFRS 2, all the standards applied in

preparation of the financial statements are accepted by the EU and have been adopted.

In view of the inclusion of MAN Ferrostaal AG as a business segment in the consolidated

accounts of MAN AG and in the close integration of MAN Ferrostaal in the MAN Group in

respect of taxes and derivative financial instruments, IAS 12 (Income Taxes) and IAS 39

(Financial instruments) have not been fully applied at the level of MAN Ferrostaal in

respect of disclosure requirements. Disclosure of such matters is not necessary in terms

of presenting a true picture of the asset, financial and earning situation of the Group divi-

sion and would not enhance the information content of the consolidated financial state-

ment of the Group.

Subject to the exceptions below, the accounting and valuation principles applied to and

underlying these IFRS consolidated accounts are equivalent to those permitted under the

German Commercial Code (HGB). These exceptions are:

– Accounting for long-term manufacturing contracts according to the percentage

of completion

– No accruals for deferred maintenance–Capitalisation of R&D costs for newly

developed products

– Valuation of financial instruments at market value

– Deferred tax assets shown separately from tax losses carried forward.

53 Group division: Consolidated financial statementsNotes


Disclosures and explanations that IFRS and the German Commercial Code require to be

included in consolidated financial statements are provided either in the Balance

Sheet/Income Statement or in the Notes to the Financial Statements. In this respect we

pursue the precepts of clarity, transparency of presentation and materiality of disclosure.

Compared to the previous year, changes have been made to several items due to the new

balance sheet structure by maturity (IAS 1). The main change is the breakdown of assets,

liabilities and accruals into non-current and current items. Attribution of the balance

sheet items thereby depends on the one hand on their residual term (up to 1 year or over

1 year), and on the other on the business cycle (operating cycle) of a company.

These changes relate in detail to the following:

Balance sheet assets:

– Deferred tax assets and certain other non-current assets which were previously shown

as separate balance sheet items or in the current assets are now carried as non-current

assets.

– The Schedule of Intangible Assets and Tangible Assets shows the net book values. For the

value at the start of the fiscal year and the end of the fiscal year, the original purchase /

production costs and the accumulated depreciation is shown.

– Prepayments received are shown on the liabilities side and are no longer deducted from

the inventories.

Balance sheet liabilities:

– Liabilities and accruals are broken down into a non-current and current portion. In the

case of financial liabilities, the breakdown is done by residual term, and in the case of

the other accruals and liabilities by their attribution within the operating cycle.

Income statement

– An extraordinary result may no longer be shown. Results of this kind must be included

in other operating income or other operating expenses.

The previous year's figures have been presented in a similar way.

54

Methods of consolidationIn addition to MAN Ferrostaal Aktiengesellschaft, the consolidated financial statements

of the Group also include 23 German subsidiaries and 35 foreign subsidiaries in which

MAN Ferrostaal AG, either directly or indirectly, holds the majority of voting rights.

In comparison to the previous year, seven companies have been newly added to the

Group of consolidated companies.

On December 7 , 2004, MAN Ferrostaal AG transferred most of the steel construction busi-

ness pooled in its DSD Steel Group GmbH subsidiary to the Pirson Group of Belgium. The

sale price for a share of 51 % amounted to € 10.2 million, with a put and call option for the

remaining 49 % that can be exercised by Pirson in 2007 or later and by MAN Ferrostaal in

2010 or later.

The sale was implemented with economic effect on July 1, 2004. The figures for the

MAN Ferrostaal Group include the business figures for the divested DSD companies up to

June 30, 2004. The sale resulted in loss of annual sales volume of approx. € 94 million and

a reduction of 1,416 employees from the MAN Ferrostaal Group.

The subsidiaries which were consolidated according to IAS 27 are only of minor impor-

tance for the overall picture of the asset, financial and earning situation of the

MAN Ferrostaal Group division.

Group of consolidated

companies

NUMBER OF CONSOLIDATED COMPANIESGermany Abroad Total

Included as of December 31, 2003 26 32 58

Included for the first time in 2004 – 7 7

Deconsolidated in the fiscal year 2004 2 4 6

Included as of December 31, 2004 24 35 59



The consolidated financial statements of the MAN Ferrostaal Group division are based

on the financial statements of the member companies, which have been prepared in

accordance with the uniform accounting and valuation principles of the MAN Group.

The financial statements of the companies included in the consolidated accounts of the

Group division were all audited by independent auditors, with the sole exception of some

small companies that are not subject to auditing requirements in Germany.

Capital consolidation has been done using the purchase method. For purchases after

January 1, 2004, 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 need

arise. Should the impairment test indicate a diminution in value, irregular depreciation

must be taken.

Goodwill calculated before January 1, 2004 and accounted for in accordance with IAS 22

has been taken over at the book value on December 31, 2003 and subjected to an impair-

ment test. Regular depreciation is no longer taken.

In the case of deconsolidation, the residual goodwill is released to net income.

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 nongroup parties in the equity of consolidated subsidiaries are

disclosed in a separate line within the Group's equity.

All intercompany profits, expenses and income, as well as receivables and payables

between consolidated companies are eliminated. Deferred taxes are calculated for consoli-

dation transactions recognised in net income.

Consolidation principles

56

Exchange rate at Average exchange rate

31.12.2004 31.12.2003 2004 2003

US Dollar 1.3621 1.2630 1.2424 1.1329

Pound Sterling 0.7051 0.7048 0.6795 0.6911

Danish Krone 7.4388 7.445 7.440 7.430

Swiss Franc 1.5429 1.558 1.5445 1.519

Singapore Dollar 2.2262 2.145 2.0997 1.975

Australian Dollar 1.7459 1.680 1.6912 1.747

Canadian Dollar 1.6416 1.623 1.6162 1.588

Egyptian Pound 8.2658 7.728 7.6860 6.671

Currency

conversion

In the consolidated financial statements of the Group division, the financial statements of

foreign companies from countries outside of the Euro zone have, as a matter of principle,

been converted according to the current rate method. Balance sheet items are converted

at the current rate, and income statement items at the annual average rates. Differences

deriving from currency conversion versus the prior year of balance sheet captions are

recognised in equity only. As a result, the equity shows a cumulative currency-related

reduction of € -25 million, including € -5 million from the fiscal year 2004.

The change in assets and accruals 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 conver-

sion done at the rate on the balance sheet date. Conversion for the other items has been

done at the mean exchange rate over the year. The differences resulting from the use of

different exchange rates are shown separately as currency adjustment.

The Euro exchange rates of currencies of major importance for the MAN Ferrostaal Group

division are as follows:



Buildings 20 to 50 years

Land improvements 8 to 20 years

Machinery and production plant 5 to 15 years

Factory and office equipment 3 to 10 years

Accounting and valuation principlesIndividually purchased intangible assets are capitalised at purchase cost. In accordance

with the application of IFRS 3 starting from the fiscal year 2004, intangible assets acquired

under a merger are valued at their current fair value at the time of acquisition. For subse-

quent valuation purposes, a distinction is made between intangible assets with a defin-

able useful life and those with an indefinable useful life. Intangible assets with a definable

useful life are amortised on a straight-line basis over the period of useful life, which is

usually at most ten years. Instead of regular depreciation, intangible assets with an inde-

finable useful life are subjected to an annual impairment test and, if necessary, written

down to the current fair value. If the current fair value of an asset which has previously

been subject to irregular depreciation should rise, the increase is shown as a write-up.

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 depreciation is performed on a straight-line basis over the

respective expected useful life of four years.

Tangible assets are valued at purchase or production cost, reduced by regular or, if appro-

priate, irregular depreciation. The production costs of internally manufactured tangible

assets comprise the directly attributable production costs as well as prorated indirect pro-

duction costs. Repair costs and interest costs on third-party capital are expensed in the

period in which they are incurred.

Tangible assets are depreciated according to the straight-line method over their estimated

useful lives. Low-value assets are written off in full in the year of purchase.

Regular depreciation is taken on the basis of useful lives which are specified uniformly

throughout the Group as follows:

In accordance with IAS 36, irregular depreciation is taken on tangible assets where both

the sale value and the useful value have fallen below the book value.

Intangible assets

Tangible assets

58

Other investments are shown at the lower of the acquisition cost or the current fair value.

Short-term securities are valued at market values, if they have – as usual – been classified

in the category "available for sale". Changes in the market value of short-term securities

are, after allowance for deferred tax, included in equity, i.e. with no effect on income;

where there are substantial indications for a diminution in value, an appropriate write-

down is made.

Inventories are valued at the lower of purchase or production cost or at current fair value.

Production cost includes all direct costs as well as reasonable portions of necessary indi-

rect materials and indirect labour costs, and also production-related depreciation. Selling

and general administrative expenses and interest on third-party capital are not capi-

talised. Raw materials and merchandise are valued at the average purchase cost. Adequate

allowance is made for risks resulting from longer storage or reduced utility of inventories,

as well as for uncompleted contracts with impending losses.

Pursuant to IAS 11, long-term manufacturing or construction contracts are recognised

according to the percentage of completion method by apportioning pro rata temporis the

agreed revenues earned from, and costs incurred for, contract progress and showing such

net sales, after deduction of customer prepayments, as trade receivables. Such progress or

percentage of completion is determined either on the basis of the ratio between the costs

incurred up to the balance sheet day and the expected total contract loss, or on the basis

of agreed milestones.

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 ("short-

ened percentage of completion method"). The share of the result will only be 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.

Receivables and other assets are carried at amortised purchase costs. Appropriate specific

allowances are made for receivables which are exposed to identifiable risks. For the gen-

eral collection risk, allowance is made on the basis of empirical values of the past. The

original values are reinstated wherever the grounds for any depreciation in prior periods

no longer exist.

Financial assets which have been classified in the category "available for sale", are reported

at market value in the balance sheet. The difference between the purchase cost carried for-

ward and the market value are shown under equity as unrealised profits/losses, with

allowance for deferred taxes.

Inventories

Long-term

manufacturing

or construction

contracts

Receivables

other assets

Short-term securities

Investments



In compliance with IAS 19, accruals for pensions are made in accordance with the pro-

jected unit credit method, taking due account of expected future payroll and

pension trends.

Other accruals are made for warranty obligations, outstanding costs of contracts already

invoiced, impending losses resulting from pending transactions, obligations towards

employees, and for all other recognisable risks and uncertain obligations in the amount of

their probable occurrence. Accruals that include an interest portion are discounted

accordingly.

Liabilities are, as a matter of principle, shown at the repayment amount in the

balance sheet.

Pursuant to IAS 12, tax deferrals are made for different valuations of assets and equity &

liabilities in the IFRS balance sheet, the commercial balance sheet and the tax balance

sheet and for consolidation matters affecting net income. Capitalised deferred taxes are

only shown in so far as the tax reductions connected thereto will probably be forthcom-

ing. Capitalised deferred taxes also comprise losses carried forward, if a taxable income is

to be expected in future which will be sufficient for the realisation of the deferred taxes.

The tax rate for German companies has remained unchanged from the previous year, i.e.

39.4 %.

The companies of the MAN Ferrostaal Group always hedge their interest and currency risks

at fair-market conditions via the central Group division treasury of MAN Ferrostaal AG.

For the MAN Ferrostaal Group these are for the most part forward exchange transactions.

They are assessed at market value. At the end of the fiscal year, the market value of the

sale of foreign currencies amounted to € 35 million (previous year: € 40 million), and the

market value of the purchase of foreign currencies to € -14 million (previous year:

€ -5 million).

In the case of derivative financial investments which are connected with hedging, the

reporting in the balance sheet is determined by changes in the market value according to

the nature of the hedge. A fair value hedge exists, if a forward exchange transaction serves

to secure an existing underlying transaction, especially an order not yet completed or a

customer claim in a foreign currency. In this case, a change in the market value of the for-

ward exchange transaction leads to a counterchange in the market value of the underly-

ing transaction. In the balance sheet, the changes in the market value are reported under

the respective balance sheet item of the underlying transaction, in particular under trade

receivables, under inventories and under trade payables. In the income and earned sur-

plus statement, the changes in the market value of the hedge and the underlying transac-

tion are as for the balance not affecting the income.

Cash flow hedges include in particular upstream exchange rate hedges for future sales

revenues from series manufacture and for high-probability customer projects (as well as

interest rate hedges for the refinancing of customer financing). In this case, any change in

the fair value of the hedging transaction is, after the deduction of deferred tax, shown

under equity as unrealised profit/loss.

Deferred taxation

Financial derivatives

and hedges

Accruals, liabilities

60

Sales are recognised as and when the underlying products or goods have been delivered or

the services rendered, in each case net after deduction of discounts, customer bonuses

and allowances. Sales revenues from long-term manufacturing or construction contracts

are recognised on a percentage of completion basis.

Operating expenses are recorded when the underlying products or services are utilised,

while expenses for advertising and sales promotion as well as other sales-related expenses

are recognised when incurred. Accruals for warranties are formed at the time the products

are sold. Interest and other costs of debt are expensed during the period.

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. The actual values may deviate from these estimates.

If the basis on which the original estimate changes, the balance sheet is changed accord-

ingly, with a corresponding effect on income.

Income, gains,

expenses and losses

Estimates



(1) Net sales

(3) Other

operating expenses

(2) Other

operating income

Notes to the consolidated income statement

Other operating income includes, among others, income deriving from the release of

accruals, the disposal of assets, the cancellation of downward value adjustments in respect

of receivables, and onward invoicing of expenses and other financial instruments.

Other operating expenses include the expenses which have not been allocated to func-

tional costs. Included therein is also that part of expenses for R&D representing neither

order-related production costs nor capitalised development costs, as well as additions to

accruals, value adjustments on current assets, expenses for structural measures and

losses from asset disposals. The total R&D expenses amounted to


SALES BY REGIONSmillion €

2004 2003

Germany 490 502

EU without Germany 324 321

Other Europe 320 201

Africa 214 222

Asia 322 456

Australia 59 30

North America 648 378

Latin America 808 770

3,185 2,880

SALES BY BUSINESS SEGMENTSmillion €

2004 2003

Facility Construction and Contracting 888 1,145

Steel Construction 127 229

Industrial Equipment and Systems 445 436

Steel Trading and Logistics 1,725 1,070

3,185 2,880

62

million €

2004 2003

Income from profit & loss transfer agreements – 3

Income from other investments 2 2

Depreciation of investments – 12 – 2

Result from the sale of investments – 2 6

– 12 9

million €

2004 2003

Current taxes 23 39

Deferred taxes – 16 – 14

7 25

For tax purposes MAN Ferrostaal Aktiengesellschaft forms part of MAN Aktiengesellschaft

and does not therefore incur any direct tax liabilities. Current taxes include an apportion-

ment of MAN AG in respect of corporate income tax and trade tax on income in Germany

in the amount of € 9 million (previous year: € 2 million).

(4) Other income

from investments

(5) Net interest result

(6) Income taxes

million €

2004 2003

Other interest and similar income 19 24

Interest and similar expenses – 16 – 18

Interest portion of provision for pension accruals – 13 – 14

– 10 – 8

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 € 6 million (previous year: € 7 million) received from associated

companies while interest expenses include € 2 million (previous year: € 1 million) from

associated companies.



The tax load ratio – income taxes in relation to the result before taxes – amounts to 11 %

(previous year: 39 %). Based on the domestic corporate income tax, a tax rate of 26.4 % is

anticipated. The difference between the expected tax rate and actual tax rate is due in

particular to tax-free income.

Deferred taxes are to be allocated to the following balance sheet items:

million €

31.12.2004 31.12.2003

Deferred tax assets

Pension accruals 12 11

Inventories and receivables – 13 4

Other accruals 19 5

Losses carried forward 69 65

Other 4 4

91 89

Deferred tax liabilities

Non-current assets 9 18

Inventories and receivables 20 47

Other accruals 28 1

Other 3 2

60 68

64

(7) Intangible assets

Notes to the balance sheetIntangible assets include concessions acquired by the Group, EDP software and similar

rights and assets as well as R&D costs. As at December 31, 2004 and December 31, 2003,

there was no goodwill arising from capital consolidation.

million €

Gross values on Dec. 31, 2002 15 3 18

Accumulated depreciation – 10 – – 10

Balance at Dec. 31, 2002 5 3 8

Change in group of consolidated companies 1 – 1

Additions 1 – 1

Depreciation – 4 – 1 – 5



Accumulated depreciation – 8 – 2 – 10


Additions 1 – 1

Disposals – 1 – – 1

Depreciation – 1 – 1 – 2



Accumulated depreciation – 7 – 3 – 10

Regular depreciation on licences, software, similar rights and assets and on development

costs is included in the function costs, especially the costs of sales. Irregular depreciation

is included in the other operating expenses.

Licenses, soft-

ware and similar

rights

Development

costs

capitalised

Intangible

assets



(9) Investments

million €

Gross values on Dec. 31, 2002 197 92 107 2 398

Accumulated depreciation – 95 – 70 – 86 – – 251

Balance at Dec. 31, 2002 102 22 21 2 147

Change in group of consolidated companies 2 4 – – 6

Additions – 6 11 2 19

Transfers – – 1 4 – 3 –

Disposals – 6 – 1 – 2 – – 9

Depreciation – 10 – 6 – 11 – – 27

Currency adjustments – 1 – 1 – 1 – – 3

Balance at Dec. 31, 2003 87 23 22 1 133


Accumulated depreciation – 99 – 66 – 81 – 246

Balance at Dec. 31, 2003 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 –

Disposals – 4 – 1 – 1 – – 6

Depreciation – 6 – 6 – 8 – – 20

Currency adjustments 1 – – – 1

Balance at Dec. 31, 2004 78 17 20 1 116


Accumulated depreciation – 23 – 48 – 77 – – 148

The regular depreciation on tangible assets is included in the function costs, especially

the costs of sales. Irregular depreciation is included in the other operating expenses. It

amounted to € 5 million (previous year € 3 million).

Irregular depreciation was taken on investments in an amount of € 12 million (previous

year: € 2 million).

(8) Tangible assets

Land and build-

ings

Plant and

machinery

Other factory

and office

equipment

Prepayments

and con-

struction in

progress

Tangible

assets

66

(10) Inventories

(11) Trade receivables

million €

31.12.2004 31.12.2003

Raw materials and supplies 6 12

Work in process and finished products 444 317

Merchandise 164 73

Prepayments made 76 67

690 469

million €

31.12.2004 31.12.2003

Future receivables due from long-term manufacturing and

construction contracts 51 108

Receivables due from customer 347 354

Receivables due from associated companies 10 10

Receivables due from investments 8 3

416 475

million €

31.12.2004 31.12.2003

Production costs including order results of long-term

manufacturing and construction contracts 963 903

Less milestones capitalised as WIP – 9 – 20

Future receivables due from long-term manufacturing

and construction contracts before prepayments received 954 883

Less prepayments received thereon – 903 – 775

51 108

The book value of inventories written down to their fair value amounts to € 38 million

(previous year: € 33 million). The amount of the writedown of inventories with effect on

the results income in the fiscal year under review amounted to € 4 million (previous year:

€ 3 million).

Future receivables due under long-term manufacturing contracts are recognised accord-

ing to the percentage of completion (PoC) method are as follows:

Sales from long-term production orders amounted to € 656 million (previous year:

€ 714 million). Orders and parts thereof already billed to the customer are shown as other

receivables due from customers.

The trade receivables include € 101 million (previous year: € 91 million) with a remaining

term of more than one year.



(12) Other assets

(13) Short-term

securities, cash and

cash equivalents

(14) Equity

million €

31.12.2004 31.12.2003

Derivative financial instruments 35 40

Sundry other assets 195 146

230 186

million €

31.12.2004 31.12.2003

Short-term securities 157 164

Due under intragroup financing from associated companies 321 429

Cash on hand and in bank 141 139

619 732

The sundry other assets mainly comprise shares in project and operator companies as

well as other financial investments at home and abroad.

Included in the receivables due from financial transactions with associated companies are

receivables due from MAN AG in the amount of € 274 million.

Short-term securities are held as liquidity investments, recognised at market value.

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 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 consolida-

tion that have no effects on results – currency adjustments and changes in holdings.

million €

31.12.2004 31.12.2003

Other non-current assets 81 60

Other current assets 149 126

Included in the receivables due from financial transactions with associated companies

are also claims and liabilities from profit and loss transfer agreements, dividends and tax

contributions.

Disclosure in the balance sheet

68

The MAN Group's pension scheme is mainly based on direct defined benefit obligations.

As a rule, the actual future pension amounts depend on the length of service with the

Group and the pensionable pay. The pension scheme is financed by making appropriate

accruals, in case of some foreign subsidiaries also by contributions to pension funds.

The pension accruals are valued on an actuarial basis in accordance with the projected

unit credit method, taking due account of future trends.

(15) Financial liabilities

(16) Pension accruals

million €

31.12.2004 31.12.2003

Due to banks 23 21

Liabilities from financial transactions – 2

23 23

million €

31.12.2004 31.12.2003

Non-current financial liabilities with a residual

term of more than one year 2 2

Current financial liabilities with a residual term

of up to one year 21 21


The equity share from unrealised profits/losses is mainly a result of the market assess-

ment of short-term securities of current assets.

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.

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 € 91 million of its net income

during the fiscal year to MAN Aktiengesellschaft.



For German companies of the Group, the expected salary and pension increases are based

on the following assumptions:

During the fiscal year under review, pension scheme-related expenses amounted to


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

of obligations:

million €

31.12.2004 31.12.2003

Balance at Jan. 1 235 230

Expenses for additional pension claims accrued

in the fiscal year 4 4

Interest cost 13 14

Pension payments – 15 – 14

Effects from changes of Group of consolidated

companies, currency and others – 5 1

Balance at December 31 232 235

million €

31.12.2004 31.12.2003

Current value of pension entitlements of the defined

benefit obligations financed by accruals 260 254

Adjustment amount due to actuarial

gains (+) and losses (-) – 28 – 19

Balance at December 31 232 235

%

31.12.2004 31.12.2003

Payroll trend 2.5 2.5

Pension trend 1.5 1.5

Interest rate 5.0 5.5

For foreign companies, these assumptions are modified in accordance with

local circumstances.

Pension accruals developed as follows during the fiscal year under review:

The current value of pension entitlements of the benefit obligations shows the defined

benefit obligations to employees at the balance sheet date.

70

(17) Other accruals million €

Business obligations 34 – 1 – 16 115 – 8 124

Structural measures 21 – – 16 15 – 1 19

Obligations to employees 9 – 1 – 3 2 – 1 6

Other accruals 57 7 – 17 29 – 4 72

121 5 – 52 161 – 14 221


million €

31.12.2004 31.12.2003

Non-current accruals 9 13

Current accruals 212 108

The accruals in respect of business obligations comprise mainly warranty and suretyship

obligations, 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.

The obligations to personnel consist of future payments for anniversaries, early retire-

ment and pre-retirement part-time working.

The other accruals cover a range of identifiable special risks.

Balance at

Dec. 31,

2003

Change in group

of consolidated

companies,

currency

adjustments

Utilisation Provision Retransfers Balance at

Dec. 31,

2004



18) Other liabilities million €

31.12.2004 31.12.2003

Liabilities to personnel 35 36

Currency and interest hedges 14 5

Liabilities for other taxes 9 26

Remaining sundry liabilities 50 61

108 128

million €

31.12.2004 31.12.2003

Current liabilities 108 128


The liabilities to personnel comprise wages, salaries and social security contributions not

yet due at the balance sheet date, accrued vacation as well as special year-end payments.

million €

2004 2003

Expenses of raw materials, supplies

and merchandise 2,050 1,826

Cost of services purchased 157 390

2,207 2,216

72

Other information on the financial statementsThe cost of sales includes the following costs of materials:Other notes to the

income statement

Contingencies

million €

2004 2003

Wages and salaries 211 273

Social security contributions and pension expenses 49 63

260 336

million €

31.12.2004 31.12.2003

Guarantees and suretyship 179 56

Guarantees for third-party liabilities 85 47

Notes endorsed and discounted 2 15

The personnel expense break down as follows:

On average, the Group employed 5,633 people during the year

(previous year 7,009 persons).

The guarantees for third-party liabilities in an amount of € 53 million are secured by the

pledging of short-term securities (previous year: € 41 million).



Other financial obligations consist of agreements for rent of land and buildings and

leasing contracts. Future payments to be made during the minimum period these

agreements remain in force will fall due as follows:

For purposes of the cash flow statement the payments flows are divided into the three

areas, namely operating activities, investment activities and financing activities. The

effect of changes in the group of consolidated companies has been eliminated from the

respective items.

In the cash outflow from operating activities, the noncash operating expenses and

income and the income from the disposal of assets are eliminated.

"Cash earnings" are shown separately; They reveal the change in cash resulting from the

results for the year. Interest income in the amount of € 19 million (previous year: € 24 mil-

lion), interest expenses in the amount of € 16 million (previous year: € 18 million) and

the income tax paid in the amount of € 5 million (previous year: € 12 million) have been

allocated to operating activities.

A significant affect on the cash outflow from operating activities resulted from the net

funds tied up in inventories, customer prepayments received, and receivables. During the

fiscal year under review these developed as follows:

Other financial

obligations

Cash flow statement

million €

31.12.2004 31.12.2003

Within one year 14 15

After more than one but within five years 38 42

After more than five years 37 44

89 101

million €

31.12.2004 31.12.2003

Inventories 690 469 – 35 -256

Trade receivables 416 475 – 12 47

Prepayments received from customer – 675 – 586 25 114

431 358 – 22 – 95

The financial obligations towards third parties from investment projects commenced but

not completed were within the normal business scope. Leasing contracts mostly relate to

the leasing of land and buildings and motor vehicles.

First-time

consolidation/

Deconsolidation/

Currency adjustments

Liquidity

effect

74

The investments shown for investment activities include the additions to intangible

assets and tangible assets – in case of investments in financial assets – also payments for

the acquisitions of holdings and additional purchases that were eliminated from the

fixed-asset schedule in connection with the consolidation of the holdings.

Also included in investment activities is the income from sales of fixed assets and invest-

ments as well as the cash and resources taken over in connection with the acquisition of

investments.

The cash outflow from financing activities includes in particular the distribution of divi-

dends and the change in short-term securities of the current assets as well as the financial

debts.

Cash and resources include cash at banks, cheques, cash on hand and receivables due from

financial transactions with associated companies.

The total remuneration of the members of the Supervisory Board amounted to 182 T€

(previous year: 182 T€) and those for the members of the Executive Board to 2,122 T€ (pre-

vious year: 2,934 T€), including 816 T€ (previous year: 1,349 T€) as fixed emoluments and

1,306 T€ (previous year: 1,585 T€) as emoluments depending on performance.

With effect as of July 1 of each of the years 2000, 2001, 2003 and 2004, the MAN Group

implemented a company value growth scheme. Under this, the Executive Board members

and management officers of MAN Group companies are given a certain number of value

growth rights, which after a blocking period of two years can be converted within the fol-

lowing five years into taxable emolument in a value depending on the share price devel-

opment of MAN ordinary shares. In the fiscal year 2004, expenses for accruals in the

amount of 597 T€ (previous year: 85 T€) were incurred in this connection.

The emoluments of former Executive Board members and their surviving dependants

amounted to 1,056 T€ (previous year: 604 T€). A total amount of 6,597 T€ (previous year:

6,984 T€) was allocated to accruals to cover pension obligations for former members of

the Executive Board and their surviving dependents.

Total remuneration of

the Supervisory Board

and the Executive Board



The members of the Supervisory Board and the Executive Board are listed on pages 2

and 3 of the Annual Report.

Essen, February 14, 2005

MAN Ferrostaal Aktiengesellschaft

The Executive Board

76

Unqualified audit certificate for a consolidated financial state-ment voluntarily prepared in accordance with IFRS

To the Executive Board of MAN Ferrostaal Aktiengesellschaft, Essen

We have audited the consolidated financial statements – consisting of Income Statement,

Balance Sheet, Cash Flow Statement, Statement of Equity Changes and Notes - prepared

by MAN Ferrostaal Aktiengesellschaft, Essen, for the fiscal year from January 1 to Decem-

ber 31, 2004. The preparation and contents of the consolidated financial statements of the

Group division according to the International Financial Reporting Standards (IFRS) are the

responsibility of the Executive Board of the Company. Our task is to audit the consoli-

dated financial statements of the Group division and, on the basis of this audit, to ascer-

tain whether or not the said financial statements comply with the IFRS.

We have carried out our consolidated financial statements of the Group division audit in

accordance with the German auditing regulations and in keeping with the German princi-

ples established by IDW, the German Institute of Auditors, for good accounting practise.

According to these, the audit is to be planned and carried out in such manner as to enable

the auditors to judge with reasonable certainty whether the Group division's consolidated

financial statements are free of any substantial misleading statements. In deciding on our

actual auditing activities, we took due account of our knowledge concerning operating

activities and the economic and legal environment of the Ferrostaal Group division and

our expectations of possible errors. In the course of our audit we assessed the documenta-

tion underlying the valuations and information in these consolidated financial state-

ments by means of random sample checks. The audit comprises the assessment of the

accounting principles employed and the main assessments of the Executive Board and

appraises whether the consolidated accounts constitute a fair representation of the Group

division. We are of the opinion that the audit carried out by us constitutes an adequate

reliable basis for making these assessments.

It is our conviction that the consolidated financial statements of the Group division are in

conformity with the IFRS and convey a picture of the asset, financial and income situation

of the Group division and also of its cash flows during the fiscal year under review that

correspond to the Group division's effective situation.

Our audit, which also covered the Review of Business of the Group division of

MAN Ferrostaal Aktiengesellschaft prepared by the Executive Board for the fiscal year

from January 1, to December 31, 2004, did not give rise to any objections on our part. It is

our opinion that the Review of Business of the Group division of MAN Ferrostaal

Aktiengesellschaft provides an overall correct view of the situation of the Group company

and outlines appropriately the risks associated with future developments.

Düsseldorf, February 24, 2005

BDO Deutsche Warentreuhand

Aktiengesellschaft

Wirtschaftsprüfungsgesellschaft

Harnacke Horn

Auditor Auditor

77 Group division: Consolidated financial statementsAudit certificate


78

MAN Ferrostaal Group division: Seven-year financial summary

1998/99 1999/00 SFY 20001) 2001 2002 2003 2004

Orders in million €

Order intake 2,228 2,927 1,359 2,737 3,178 2,738 3,508

Germany 700 604 280 546 441 460 524

Abroad 1,528 2,323 1,079 2,191 2,737 2,278 2,984

Sales 2,668 2,541 1,410 2,855 2,916 2,880 3,185

Germany 665 598 365 636 573 502 490

Abroad 2,003 1,943 1,045 2,219 2,343 2,378 2,695

Orders on hand as of June 30/Dec. 31 1,978 2,458 2,414 2,263 2,459 2,186 2,259

Germany 591 599 571 457 302 230 207

Abroad 1,387 1,859 1,843 1,806 2,157 1,956 2,052

Employees at home and abroad

As of June 30/Dec. 31 – number 6,811 7,145 7,545 7,230 6,598 6,689 4,679

On an annual average – number 6,952 7,312 7,478 7,485 6,768 7,009 5,633

Personnel expenses per capita in € 44,275 46,195 23,410 45,898 46,706 47,995 46,149

Capital expenditures and funding in million €

Investments in tangible and intangible assets 28 23 20 42 17 20 15

Purchase of financial assets 9 23 7 4 6 2 21

Depreciation 26 25 15 26 24 33 34

Cash Earnings 57 64 51 90 76 65 69

Key ratios (%)

Equity ratio 25.3 28.6 28.2 28.9 24.0 15.4 13.9

Equity-to-fixed-assets ratio 191.8 225.0 200.4 228.8 202.0 181.9 194.3

Aftertax return on equity 8.5 9.2 11.82) 8.8 12.2 12.1 17.9

Pretax return on sales 2.7 3.0 3.0 3.7 2.9 2.3 1.9

Return on capital employed 15.5 14.9 16.22) 20.2 14.8 15.0 15.8

Cash Earnings in relation to sales 2.1 2.5 3.6 3.2 2.6 2.3 2.2

1) Short fiscal year from July 1, to December 31, 20002) Linearly extrapolated to 12 months

79 Group division: Consolidated financial statementsSeven-year financial summary


80

DSD Industrieanlagen GmbH

Baumstraße 25

45128 Essen

Phone: +49.201. 818-50

Fax: +49.201. 818-5209

DSD Stahlbau GmbH

Henry-Ford-Straße 110

66740 Saarlouis / Germany

Phone: +49.6831. 18-0

Fax: +49.6831. 18-2416

(until June 30, 2004)

MAN Ferrostaal Industrieanlagen GmbH

Industriestraße 13

65366 Geisenheim / Germany

Phone: +49.6722. 501-1

Fax: +49.6722. 501-221

Intergrafica Print & Pack GmbH

Druckmaschinenvertrieb

Hohenzollernstraße 24

45128 Essen

Phone: +49.201. 818-08

Fax: +49.201. 818-3970

MAN Ferrostaal Industrie-

und System-Logistik GmbH


45128 Essen

Phone: +49.201. 818-2500

Fax: +49.201. 818-3500

MAN Ferrostaal Piping Supply GmbH


45128 Essen

Phone: +49.201. 818-2535

Fax: +49.201. 818-3930

Our Main Subsidiaries

This annual report is printed on chlorine-free »Galaxi Supermat« paper produced by Papier Union, using anMAN Roland four-color sheet-fed offset press.

MAN Ferrostaal AG

Hohenzollernstraße 2445128 Essen/GermanyPhone +49. 201. 8 18-01Fax +49. 201. 8 18-28 22www.manferrostaal.com

A memberof the MAN Group

2004

Documents

2004 Annual Report MAN Ferrostaal AG · MAN B&W Diesel is the »birthplace« of the Diesel engine and a ... of the world’s most powerful Diesel engine ... MAN Ferrostaal Annual