E_mg_GB_03_vorne-29_3_04

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4 LETTER TO THE SHAREHOLDERS Dear Shareholders, I took over as Chief Executive Officer of mg technologies ag following the Annual Shareholders’ Meeting on June 4 last year. The first step towards a new beginning for the company – and something that was in the interest of all concerned – was the settlement of the long-running conflict between mg and one of its major shareholders. This was accomplished – with the backing of the newly elected Supervisory Board – by the beginning of September. At the same time, our attention was focused on the forthcoming restructuring. By adopting the necessary resolutions, the Executive Board and the Supervisory Board dealt with the backlog of decisions that had built up in recent years. They also cleaned up the Group’s balance sheet, which largely contributed to its pre-tax loss of a241 million under its current structure. This figure includes one-off charges of a437 million, which cover the cost of restructuring and reorganization, risk provisioning for pre-existing contracts, the settlement of long-running lawsuits, and the disposal or discontinuation of loss-making businesses. In hindsight, 2003 therefore heralds a new strategic departure and the application of more conservative accounting policies. It is no longer possible to run the mg Group as a profitable venture while retaining its two traditional core businesses: Engineering, consisting of GEA’s specialty mechanical engineering activities and the companies engaged in industrial plant engineering; and Chemicals, comprising Dynamit Nobel and solvadis’ trading operations. We do not have the financial resources to continue this strategy. Having examined all other feasible alternatives, the Executive Board – with the backing of the Supervisory Board – decided last fall to sell the Chemicals division and, once it had paid down the Group’s debt, to use the funds available to expand the Group’s specialty mechanical engineering activities. GEA is already a technology leader in all its markets and, with a return on sales of over seven percent, highly profitable. We believe that by stepping up its internationalization and rounding off its range of activities right along the value chain, GEA will continue to have excellent prospects.
MANAGEMENT SHARE STRATEGY SPECIAL SECTION MANAGEMENT REPORT FINANCIAL STATEMENTS FURTHER INFORMATION Executive Board • Letter to the Shareholders • Supervisory Board • Report of the Supervisory Board • Corporate Governance at mg The strategic refocus of the mg Group will entail simplifying its entire organizational structure. The first step will be to integrate the business operations of those companies engaged in industrial plant engineering with mg technologies ag. The current Lurgi AG and Lurgi Lentjes AG intermediate holding companies will be wound up. The number of staff in mg’s holding company has been reduced. Once the Chemicals division has been sold, we plan to merge the remaining holding companies of mg technologies ag and GEA AG in Bochum. By successfully completing this project, we will cut the mg Group’s holding-company costs from a170 million in 2002 to a50 million. GEA and Dynamit Nobel performed satisfactorily in 2003 despite the economic conditions. They managed to defend – and, in some cases, enhance – their strong market positions. By contrast, the profitability of the industrial plant engineering business once again proved problematic. Lurgi and Lurgi Lentjes both suffered heavy losses in their operating business, particularly through the completion of existing projects; these included selling Stahlbau Plauen, which had been making losses for years, settling disputed pre-existing contracts, and setting aside risk provisions to cover their settlement. The Group’s strategic refocus will require the industrial plant engineering business to concentrate on proprietary technologies in profitable growth markets. It will also necessitate a reduction of capacities in order to substantially lower the break-even threshold. Taken together, these measures will cut the headcount in this business by about 500 employees. 2004 will be the year of implementation. This centers on the disposal of the Chemicals division and the restructuring of the industrial plant engineering business and in 2005 will put the company back on track for growth and expansion. The Group’s sales – excluding acquisitions – will then be in the order of a4.5 billion. Its profitability will increase substantially on the back of GEA’s robust performance, the improvement in the Group’s financial structure – relieving much of the pressure on its interest income – and the sharp reduction in its holding-company costs. Assuming the economic environment improves, its pre-tax return on sales should be raised to five percent. Should the right opportunities arise, mg will once again be in the market for acquisitions. In conclusion, we can say that the capital markets have been quick to reward this strategy, causing mg’s share price to soar by 88 percent in 2003. This has strengthened our resolve to continue the current restructuring process swiftly and without any taboos. This venture can only succeed with the support of all concerned. I would therefore like to take this opportunity to thank all our employees and their representatives for the work they have done and the commitment they have demonstrated throughout the mg Group. I would also like to express my gratitude to our shareholders for their continued confidence in the company’s stock. My colleagues and I and all mg employees will continue to do all we can to make mg a consistently profitable organization. Udo Stark Chairman of the Executive Board 5
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mg's mission is to ensure sustainab
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Key Figures for the mg Group RESULT
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