E_mg_GB_03_vorne-29_3_04

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44 Engineering and chemical industries unsatisfactory 2003 was a disappointing year for the German engineering sector. At the end of August, the German Engineering Federation revised downwards its forecast for 2003, which in the fall had still been predicting just above zero growth for the year as a whole. Instead of stagnating, production fell by one percent in real terms in 2003. The chemical industry performed sluggishly in 2003 after the sector was hit by weak demand and strong pressure on prices. The German Chemical Industry Federation (VCI) expects production in Germany to rise by only 0.5 percent in 2003. Performance of mg-relevant markets varies The performance of mg’s key markets varied in 2003. The food industry, one of GEA’s most important customers, can look back on an encouraging year. According to the Federation of German Food and Drink Industries (BVE), sales in Germany’s fourth-largest industrial sector rose year on year by a nominal 2.3 percent in 2003. The performance of the international dairy markets relevant to GEA’s dairy farm systems business varied widely. While Germany and France showed signs of improvement on the previous year, dairy markets in the U.S. and parts of western Europe suffered from weak milk prices. Unfazed by the generally poor performance of the chemical industry, the pharmaceutical sector continued to grow in 2003. According to the German Chemical Industry Federation, German pharmaceutical companies managed to raise their production by 3.5 percent in 2003. Business activity in the automotive industry – a major customer for Dynamit Nobel – remained relatively low in its core European and U.S. markets in 2003. By contrast, Asia – particularly China – increased its production. According to the German Association of the Automotive Industry (VDA), the number of new car registrations stagnated in Germany, a total of 3.24 million cars being registered here in 2003. Dollar continued to weaken The dollar/euro exchange rate is of great importance to the currency translation and invoicing of a large proportion of mg’s business activities. The U.S. dollar continued to weaken during the course of 2003. One euro cost an average of 1.13 dollars in 2003. The value of the euro had therefore increased by an average of roughly 20 percent year on year against the dollar.
MANAGEMENT SHARE STRATEGY SPECIAL SECTION MANAGEMENT REPORT FINANCIAL STATEMENTS FURTHER INFORMATION SITUATION OF THE COMPANY Economic Environment • Situation of the Company • Organization and Structure • Risk Report • Employees • Performance of the Subgroups • Outlook At the beginning of October 2003, mg technologies ag announced significant changes in its strategic positioning: the company has decided to concentrate in the future on specialty mechanical engineering – especially process engineering and components - and plant engineering. During the year under review, the company’s performance was hit by the weak global economic environment. Its sales and earnings were also depressed by adverse currency developments resulting from the euro’s strength (especially against the U.S. dollar). This situation was compounded by substantial one-off charges for pre-existing problem contracts in the industrial plant engineering business, the settlement of long-running lawsuits, and the disposal or discontinuation of loss-making businesses. These charges also include the cost of restructuring and reorganizing the mg Group. Strategy 2003 was a year of radical strategic transformation for mg technologies ag. Following its Annual Shareholders’ Meeting on June 3 last year, the company started to conduct a comprehensive review of its structures. This involved re-examining the Group’s entire strategic position, which was based on the two pillars of engineering and chemicals. The aim of this strategy was to identify mg’s potential and, consequently, provide a sound basis for profitable growth in the future. Having presented the findings of this review and carefully considered all available options, mg’s Executive Board announced the main points of the restructuring on October 2 last year. The next step was to start with the swift implementation of the measures adopted. The key aspects of the company’s new strategy are as follows: In the future, the new mg will concentrate on GEA’s specialty mechanical engineering – especially process engineering and components – and on the heavily streamlined industrial plant engineering business including the subsidiaries Lurgi, Lurgi Lentjes and Zimmer. The chemicals division – comprising Dynamit Nobel and solvadis – is due to be sold for the bestpossible price in 2004. This will pay down the Group’s debt and place it on a sound footing for future expansion through organic growth and acquisitions. Industrial plant engineering is to be streamlined. Businesses with low profitability or a weak market position will be discontinued. Under new management, mg’s activities in this field will concentrate more on pioneering technologies with sustainable market potential. The break-even thresholds of Lurgi and Lurgi Lentjes are to be considerably lowered. The plan is to ensure that the entire industrial plant engineering business returns to profitability as soon as possible by means of more stringent selection of new business, portfolio modifications and capacity adjustments. In line with the new strategy, the current holding-company structures are being considerably simplified. This will considerably enhance mg’s efficiency and improve its cost structure in the short term. 45
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Key Figures for the mg Group RESULT
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