mg technologies ag Annual Report 2001/2002 Technologies for Life

(1)

mg technologies ag

Annual Report 2001/2002

Technologies for Life

(2)

day—24/7, throughout their lives. They help improve their quality of life,

health and safety by providing them with healthy food, effective medicines,

resource-saving mobility and a cleaner environment. mg’s technologies

make life livable.

With its core competencies of engineering and chemicals, mg focuses on

attractive growth markets. These include life sciences such as

pharma-ceuticals, healthcare, nutrition, agrochemicals, cosmetics, and the fields of

specialty chemicals, energy technology and environmental engineering.

mg has established itself as an effective value-adding partner to its industrial

customers. Its companies occupy leading positions in almost 90 percent of

their markets. Innovative technologies, strong market positions and

value-based management will continue to drive mg’s profitable growth and

increase its shareholder value.

Examples from the mg Group’s extensive technology portfolio: mg subsidiaries provide technologies for obtaining and processing milk efficiently and as unintrusively as possible. Innovative process engineering is used in the food industry, for example to produce so-called functional foods such as energy bars.

(3)

€ € € €

Results of operations

Sales 7,456 8,797 8,817.7 8,585.8 – 2.6

thereof outside Germany 4,680 6,077 6,418.9 6,322.2 – 1.5

thereof in Germany 2,776 2,720 2,398.8 2,263.6 – 5.6

EBITDA 515 708 701.9 633.9 – 9.7

EBIT

including goodwill amortization 254 388 388.1 396.6 2.2

excluding goodwill amortization 298 458 461.8 396.6 – 14.1

Pre-tax earnings and minority interests

as percentage of sales (ROS) 2.5 3.2 3.3 3.7

as percentage of sales (ROS) 3.1 4.0 4.2 3.7

Adjusted pre-tax earnings(1) ₂₃₄ ₃₁₃ _344.2 _347.6 _1.0

Net income

Net assets

Fixed assets 3,083 3,336 3,281.5 3,263.3 – 0.6

Current assets 3,043 2,910 2,707.6 2,649.0 – 2.2

thereof cash and cash equivalents at September 30(2) ₄₈₃ ₄₅₇ _316.6 _265.7 _{– 16.1}

Other assets (prepaid expenses + deferred taxes) 1,082 1,129 921.3 838.8 – 9.0

Total assets at September 30 7,208 7,375 6,910.4 6,751.1 – 2.3

Consolidated shareholders’ equity at September 30 1,114 1,899 1,928.9 2,036.8 5.6

as percentage of total assets 15.5 25.8 27.9 30.2

Minority interests 373 64 55.4 42.4 – 23.5

Provisions and accruals 2,161 2,086 1,967.4 1,851.7 – 5.9

Bonds 258 404 300.8 298.0 – 0.9

Liabilities to banks 921 876 715.9 683.6 – 4.5

Net position(3) _{– 988} _{– 823} _{– 700.0} _{– 715.9} _{– 2.3}

Gearing in %(4) _{– 88.7} _{– 43.3} _{– 36.3} _{– 35.1}

Financial position

Cash provided by operating activities 357 207 389.6 205.9 – 47.2

Free cash flow(5) _{– 948} ₂₈₉ _206.9 _18.3 _{– 91.2}

Investment (at balance sheet date)(6) _4,812 _4,818 _4,447.2(9) _4,381.4 _{– 1.5}

Capital expenditures (incl. capital leases) 685 416 415.5 304.0 – 26.8

thereof on property, plant and equipment and intangible assets 225 275 293.3 268.3 – 8.5 Depreciation and amortization of fixed assets

including goodwill amortization 261 320 313.7 237.4 –

Employees(7)

Number of employees at September 30 40,164 37,369 34,360 32,015 – 6.8

thereof in Germany 23,569 20,906 18,355 16,623 – 9.4

thereof outside Germany 16,595 16,463 16,005 15,392 – 3.8

Average number of employees 33,104 38,145 35,994 33,185 – 7.8

Staff expense 1,625 2,065 1,981.4 1,909.2 – 3.6

Share

Dividend per share (€) 0.26 0.25 0.25 0.25(8)

Total dividend payment 48 48 48.2 48.3(8)

Share price at September 30 (€) 19.00 12.00 6.17 6.51 5.5

Basic earnings per share 0.88 1.03 1.05(9) _0.99 _{– 5.7}

Diluted earnings per share 0.69 1.02 1.04(9) _0.97 _{– 6.7}

Weighted-average number of shares outstanding (millions) 144 186 191.2 192.3 0.6

Adjusted weighted-average number of shares outstanding

(diluted) (in millions) 181 189 193.0 194.8 0.9

Economic value added – 38 43 121.2(9) _91.5 _{– 24.5}

(1)Adjusted for one-time effects of disposals and restructuring costs (excluding goodwill amortization)

(2)Cash and cash equivalents plus marketable securities

(3)_{Net position = cash and cash equivalents}(2)_{less bonds less bank debt} (4)Gearing = net position(3)divided by consolidated shareholders’ equity

(5)_{Free cash flow = cash provided by operating activities plus cash used for investing activities}

(6)Investment = fixed assets plus current assets minus trade payables (total) minus liabilities from derivatives minus advance payments received minus provisions for outstanding invoices from suppliers

(7)_{Full-time equivalents, excluding trainees} (8)Proposed dividend

(9)_{Key figures adjusted for goodwill amortization in 2000/2001; originally:}

(4)

Lurgi 2001/2002 2000/2001(4) _2000/2001

€million €million €million

Sales 497 499 499

EBITDA 2 – 3 – 3

EBIT – 8 – 14 – 15

Pre-tax earnings 8 7 6

Adjusted pre-tax earnings(1) ₉ ₇ ₆

Depreciation and amortization

of fixed assets 10 12 13

Capital expenditures(2) ₅ ₁₃ ₁₃

Cash used for/provided by

operating activities – 43 262 262

New orders 577 730 730

Order book 833 786 786

Employees at September 30(3) _1,425 _1,525 _1,525

Lurgi Lentjes 2001/2002 2000/2001(4) _2000/2001

Sales 486 516 516

EBITDA – 6 – 18 – 18

EBIT – 8 – 21 – 21

Pre-tax earnings – 6 – 18 – 19

Adjusted pre-tax earnings(1) _{– 1} _{– 13} _{– 14} Depreciation and amortization

of fixed assets 3 3 3

Capital expenditures(2) ₄ ₁ ₁

Cash used for

operating activities – 57 – 78 – 78

New orders 408 355 355

Order book 502 582 582

Employees at September 30(3) ₆₄₇ ₇₂₃ ₇₂₃

Zimmer 2001/2002 2000/2001(4) _2000/2001

Sales 263 266 266

EBITDA 9 4 4

EBIT 7 2 2

Adjusted pre-tax earnings(1) ₁₇ ₇ ₇

of fixed assets 2 2 2 Capital expenditures(2) ₅ ₂ ₂ Cash provided by operating activities 14 32 32 New orders 225 225 225 Order book 235 326 326 Employees at September 30(3) ₃₆₂ ₃₉₅ ₃₉₅ GEA 2001/2002 2000/2001(4) _2000/2001

Sales 2,935 2,886 2,886

EBITDA 291 254 254

EBIT 238 194 179

Adjusted pre-tax earnings(1) ₂₄₁ ₁₉₂ ₁₇₇

of fixed assets 53 60 75 Capital expenditures(2) ₆₈ ₇₅ ₇₅ Cash provided by operating activities 162 265 265 New orders 2,906 2,981 2,981 Order book 1,014 1,088 1,088 Employees at September 30(3) _14,388 _14,734 _14,734 Dynamit Nobel 2001/2002 2000/2001(4) _2000/2001

Sales 2,512 2,639 2,639

EBITDA 401 453 453

EBIT 280 324 305

Adjusted pre-tax earnings(1) ₂₅₂ ₂₄₄ ₂₂₅

of fixed assets 121 128 147 Capital expenditures(2) ₁₇₉ ₂₉₄ ₂₉₄ Cash provided by operating activities 289 339 339 Employees at September 30(3) _12,748 _14,419 _14,419 solvadis 2001/2002 2000/2001(4) _2000/2001

Sales 1,441 1,406 1,406

EBITDA 35 39 39

EBIT 28 32 30

Adjusted pre-tax earnings(1) ₃₀ ₃₂ ₂₉

of fixed assets 7 6 9 Capital expenditures(2) ₃₁ ₈ ₈ Cash provided by operating activities 39 8 8 Employees at September 30(3) ₈₃₈ ₉₀₂ ₉₀₂ mg engineering mg chemical group

(1)_{Excluding one-time effects of disposals and restructuring costs}

(2)Purchases of property, plant and equipment, intangible assets and investments (including capital leases) (3)_{Full-time equivalents, excluding trainees}

(5)

Key Figures of the Subgroups IV

The Executive Board 2

Letter to the Shareholders 4

Strategy 8

The mg Share 14

Management Report 20

Economic Environment 20

Situation of the Company 22

Sales 22

New Orders and Order Books 23

Net Assets, Financial Position and

Results of Operations 24

Cash Flow 27

Capital Expenditures 28

Environment 28

Research & Development 30

Procurement 32

Production 33

Employees 34

Organization and Structure 36

From the Subgroups 37

GEA 38 Lurgi 39 Lurgi Lentjes 40 Zimmer 41 Dynamit Nobel 41 solvadis 42 Risk Report 43 External Risks 44 Supplemental Report 48 Outlook 49 Employees 56

Research and Development 58

Life Tech – Technologies for Life 64

mg engineering 66

mg chemical group 68

Consolidated Financial Statements (U.S. GAAP) 74

Independent Auditor’s Report 142

Major Shareholdings 143

The Supervisory Board and the Executive Board 154

Report of the Supervisory Board 158

Index to the Notes 160

List of Acronyms to the Notes 161

(6)

The Executive Board

Dr Karl Josef Neukirchen

Chief Executive Officer

After studying physics and economics, Neukirchen, a native of Bonn, Germany, began his career at the Philips Group in 1973. Having occupied several manage-ment positions in marketing and sales at Group companies, in 1977 he became Executive Vice President at Felten & Guilleaume Carlswerke AG, another Group company, where he was respon-sible for the power cables division. In 1981, he moved to SKF Kugellager-fabriken GmbH. In 1985 he was appointed Managing Director.

Neukirchen joined the Executive Board of Klöckner-Humboldt-Deutz AG in 1987, initially as Deputy Chairman, and became Chairman in 1988. He was CEO at Hoesch AG from 1991 until the merger with Krupp in mid-1992.

Neukirchen has been CEO of mg technologies ag since the end of 1993. Outside the mg Group he chairs among others the supervisory boards of Vossloh AG and Sixt AG.

Karlheinz Hornung

Executive Board Member

Responsible for Finance, Controlling, Investor Relations, and IT

Hornung was born in Heilbronn, Germany. After completing a commercial apprenticeship and training as a tax accountant, he joined what was then the Metallgesellschaft Group in 1977. His first position was at Kolbenschmidt AG, where he eventually became head of finance and controlling. In 1992 he was appointed Managing Director of admin-istration and finance at KS Automobil-Sicherheitstechnik GmbH. In 1993 he returned to Kolbenschmidt AG to head finance, controlling, and information systems. The following year, Hornung was appointed Finance Director at Metallgesellschaft AG in Frankfurt. In 1995 he joined the Executive Board of mg trade services ag.

He has sat on the Executive Board of mg technologies ag since 1998.

Dr Fritz Lehnen

Executive Board Member Responsible for Engineering

Born in Wassenberg near Aachen, Germany. After studying economics and completing his PhD, Lehnen con-tinued his career as assistant professor at the German executive school, USW (Universitätsseminar der Wirtschaft). In 1979 he moved to Württembergische Metallwarenfabrik AG (WMF), a sub-sidiary of the Rheinmetall Group, as head of organizational planning. He was subsequently put in charge of con-trolling, and in 1984 was appointed to the Executive Board, where he was responsible for finance and controlling. Following further positions as

Managing Director at Rheinmetall GmbH (military engineering) and on the Executive Board of Jagenberg AG, he joined FAG Kugelfischer Georg Schäfer AG as Finance and Labor Relations Director in 1993.

In 1997 he moved to the Executive Board of Dynamit Nobel AG, where he soon became CEO.

On August 1, 2000, he was appointed to the Executive Board of

(7)

Dr Michael Ramroth

Executive Board Member

Responsible for Business Development

Born in Ransbach, Germany. After study-ing law and economics and obtainstudy-ing an American MA degree, he started practicing as an attorney. He joined the mg Group in 1990. After working in the Legal and Patents department, he be-came head of corporate development in 1994. In 1997 he was appointed to the Executive Board of the mg subsidiary CeramTec AG in Plochingen. In 1999 he returned to Frankfurt as Executive Vice President of mg technologies ag, where he was in charge of finance, taxes, investor relations, and corporate development.

In July 2000 he was appointed Deputy Member of the Executive Board with responsibility for Business Development.

Jürg Oleas

Executive Board Member Responsible for Chemicals

After studying mechanical engineering at the Technical University in Zurich, Swiss-born Oleas began his career at ABB Switzerland. Here he worked as a development engineer in the field for steam turbines and plant engineering before becoming head of global sales of steam power plants. After holding further posts in the ABB Group, Oleas moved to ABB Germany as divisional head of turnkey steam power plants in 1996. From 1999 to 2001 he was President of ABB Alstom Power Switzerland.

Oleas was appointed to the Executive Board of mg technologies ag effective May 1, 2001.

Dr Rolf G. Niemann

Executive Board Member Responsible for Human Resources and Legal Services

After studying law, Niemann, a native of Heidenheim, Germany, worked at the Max-Planck Institute in Hamburg in the field of private foreign and international law before joining Mobil Oil AG in 1981. From 1985 to 1994 he was employed at Klöckner-Humboldt-Deutz AG, where he was eventually appointed to the Executive Board with responsibility for human resources, legal services, and ad-ministration. He moved to the Executive Board of AXA Colonia Konzern AG with the same portfolio in 1994.

Niemann joined the mg Group in 1998 as a member of the Executive Board of mg trade services ag and a managing director of MG Bautechnik GmbH. In addition, he was subsequently appointed to the Executive Board of Lurgi AG and Lurgi Lentjes AG, where he was in charge of human resources and legal services.

Niemann has sat on the Executive Board of mg technologies ag since July 2001.

(8)

Dear Shareholders,

Staff, Partners,

and Friends of mg,

The global economy has been in recession since mid-2001. In addition, Germany is suffering its deepest structural crisis of the postwar era.

The mg Group has performed well in this very difficult environment. Sales—adjusted for acquisitions and disposals—remained stable. We raised our underlying earnings to approximately € 347 million, bucking the adverse economic trend. As in the prior year, portfolio optimization and restructuring created one-time effects during the year under review. Including these one-time effects, pre-tax earnings were down year on year at around € 320 million.

The performance of our subgroups was encouraging, with GEA reporting its strongest-ever profits. Despite weak demand in key customer sectors, Dynamit Nobel raised its earnings, adjusted for one-time effects. The companies engaged in industrial plant engineering again improved their position, performing well overall. Although solvadis’ results were down year on year, the company turned in a satisfactory performance.

Adjusted for one-time effects, the mg Group improved its return on sales and return on capital employed. It further increased its enterprise value, measured in terms of its economic value added.

There are three principal reasons for the mg Group’s strong performance:

1. By consistently focusing our activities on growth markets, we managed to improve our results in many businesses, bucking the general trend.

2. Our fitness program, introduced early on, has boosted our efficiency. As a consequence, our productivity has risen by eight percent.

3. Our two divisions, Engineering and Chemicals, make us more immune to economic cycles.

(9)

We will continue our strategy of focusing on technology businesses that add considerable value. In the mg chemical group we therefore plan to divest our retailing and distribution business and sell the solvadis subgroup.

International industrial plant engineering is characterized by overcapacity and massive structural changes in key customer sectors. We aim to further consolidate our activities in this business by streamlining structures and concentrating capacities. To this end, we are also open to cooperation agreements. Our priority here is to improve our profitability.

We intend to exploit the existing growth potential in our highly profitable GEA and Dynamit Nobel subgroups and are also considering acquisitions in this area.

Our overall objective is to make the mg Group even more efficient and effective. We are therefore continuing to streamline our management structures. We plan to integrate mg’s holding company more closely with its operating business, flatten our hierarchies and gear structures in the subgroups toward growth businesses.

At the same time, we are continuing to optimize processes in our back-office functions. Together with a reduction in the cost of materials, this should bring savings of € 100 million. This will further lower our break-even point over the next two years and boost our earnings, especially once the economy recovers.

We do not expect the economic situation to improve much in the foreseeable future. As a result of its strategy and high efficiency, however, the mg Group is well equipped to cope with the harsh current economic climate. The action we are taking will continue to impact positively on our performance.

However, global economic and political uncertainties—especially in the Middle East—and the uncertainty surrounding Germany’s new tax legislation make it difficult to give a reliable forecast. Nonetheless, we are convinced that we can maintain our results at their high level even if the economy remains in weak condition.

Once the economy recovers, we expect to report strong growth in sales and earnings, adding further value to the company.

Dr Kajo Neukirchen

(10)

Separation technology from Westfalia Separator is key to the production of fruit and vegetable juices.

Just stir and enjoy: Niro is a leader in powder technology, for example in the production of instant coffee.

Crisp and fresh: thanks to Grasso’s refrigeration technology, fruit and vegetables can be stored and processed without any loss of flavor. Whether cheese, butter or yogurt: GEA subsidiaries supply state-of-the-art process technology, for example for the dairy industry.

(11)

cessed, carefully prepared and of top quality. Who could resist

breakfast that tastes this good?

(12)

Since the crisis of 1993/1994, the mg Group has increased its enterprise value year after year—even in fiscal 2001/2002, which was hit by recession. Its economic value added amounted to € 92 million in fiscal 2001/2002.

This is the successful result of mg’s consistent shift in strategy. The former commodity-based con-glomerate Metallgesellschaft, with its extensive trading activities, has been transformed into an inter-national technology group founded on its two main divisions of engineering and chemicals. This has provided the mg Group with a balanced risk structure and a high degree of stability that have proved invaluable in the current recession.

Consistent Portfolio Management

These developments have been accompanied by an unprecedented level of portfolio management. mg has sold businesses with weak positions in stagnating markets, while strengthening or acquiring promising businesses with strong positions in growing markets. In doing so, the mg Group has focused on high-potential, high-margin niche markets rather than fiercely contested mass markets.

Since 1993, mg has sold companies with total sales of around € 7 billion and earnings of € 140 mil-lion. Over the same period, it has acquired firms with total sales of € 5 billion and earnings of

€ 295 million. The profitability of its acquisitions has therefore been three times that of the compa-nies it has sold. As a result, it has systematically expanded its engineering and chemicals divisions. Its largest acquisition to date was GEA (1999). The mg Group’s consistent portfolio management has enabled it to substantially enhance its business profile.

Strategy. Focus on Core Competencies and Growth Markets.

The success of a strategy depends on its ability to consistently add

value—even in difficult economic conditions. The mg Group has been on

a profitable ccourse for the past eight years thanks to its focus on its core

competencies of engineering and chemicals, its leading market positions

and its concentration on long-term growth markets.

7

Shift in strategy due to portfolio restucturing Sales (€ billion) Divestments since 1993 Acquisitions since 1993 5 140 Earnings contribution (€ million) Divestments since 1993 Acquisitions since 1993 295 approx. 2 Return on sales % Divestments since 1993 Acquisitions since 1993 approx. 6

●Retailing●Plant engineering●Chemicals

●Structural engineering●Other

low rel. competitive advantage high low rel. competitive advantage high

low market potential high low market potential high MG Group portfolio in 1993/94:

Weak strategic positions

●●mg engineering ●●mg chemical group

mg Group portfolio today:

(13)

In fiscal 2001/2002, mg continued to optimize its portfolio by selling Dynamit Nobel’s ammunition business. Possible acquisitions were examined and the list of candidates was narrowed down. However, we were either unable or unwilling to carry out such transactions in view of the uncertain economic situation.

Focus on Dynamic Growth Markets

Both mg engineering and the mg chemical group focus on long-term growth markets. These include life sciences such as food and beverages, agrochemicals, pharmaceuticals, medical technology and cosmetics. These markets are growing by between five and eight percent per year and already generate 35 percent of the mg Group’s sales. The medium-term goal is to increase the proportion of sales generated from life sciences to over 50 percent.

Expansion of the Pharmaceuticals Business

mg has invested heavily in order to attain this goal, spending over € 550 million on its pharmaceuticals business alone over the past four years. Its most recent major capital investment was the construction of a new active-ingredient factory at Rohner, a Dynamit Nobel subsidiary; it had already acquired Sylachim (now Finorga), a French producer of active ingredients, in fiscal 2000/2001.

Profitable Growth Resulting from Market and Technology Leadership

mg plans to achieve profitable growth and increase its economic value added by building strong positions in growing markets. A large market share generates economies of scale and cost savings and, consequently, wider margins.

The mg Group is now a market leader in almost 90 percent of its businesses. Out of its 31 strategic business units, 27 are either first, second or third in their respective markets.

To a large extent, mg owes its strong market position to its innovative capabilities. It generates almost 50 percent of its sales from products that are no more than three years old. This enables mg to main-tain its technology leadership and provides it with a competitive advantage.

Value-Adding Partner with Technological Expertise

With its technological expertise, mg offers its customers a unique range of products and services along the entire value chain. These include planning and building complete plants (Lurgi, Lurgi Lentjes, Zimmer), equipping these plants with components and process technology (GEA) and producing, among other things, active ingredients for medicines in such plants (Dynamit Nobel). This creates synergies between mg engineering and the mg chemical group—especially in fields such as research & development, procurement, and sales & marketing. mg’s largest customers in growth businesses such as pharmaceuticals, chemicals and nutrition are all customers of at least one company from mg engineering and, simultaneously, of one company from the mg chemical group.

Continuation of a Successful Strategy

mg will continue to pursue its successful strategy. In doing so, it will be guided by the following profitability and performance targets:

– Return on capital employed (ROCE) of 14 percent – Return on sales (ROS) of at least five percent – Continual increase in economic value added

– Productivity improvement of at least five percent per year – Strengthening of its balance sheet and net position

Market breakdown % 34 Specialty chemicals 35 Life sciences 18 Other 13 Environ-mental engineering

(14)

Continued Focus on Added-Value Technology Businesses

In order to meet these ambitious targets, mg will sharpen its focus on fast-growing markets and market segments over the next few years. This will entail further divestments and acquisitions.

The mg Group will also continue its internationalization with a view to global growth markets. Almost half of its employees now work outside Germany.

Expansion of Core Businesses at GEA and Dynamit Nobel

A key element of mg’s strategy is to expand its highly profitable growth businesses at GEA and Dynamit Nobel. It plans to achieve organic growth above the market average by focusing on high-margin sectors and developing new technologies, products and services. It also aims to strengthen these businesses through capital spending and acquisitions.

The growth businesses at Dynamit Nobel include its activities in active pharmaceutical ingredients, which are combined under the umbrella of Dynamic Synthesis. The customers of this interrelated production unit already include half of the top drug manufacturers, many of them leading global players. Through further capital spending and acquisitions, Dynamit Nobel plans to double its sales in this business over the next three to four years and become one of the top four providers. Following the completion of a new pharmaceutical plant at Rohner AG, for example, a further 80 million Swiss francs is to be invested purely in the expansion of this specialist plant. At the same time, Dynamit Nobel plans to divest the remaining activities of its formerly core explosives business.

GEA aims to sharpen its focus on the life sciences of food and beverages, pharmaceuticals and biotech-nology. Its goal is to raise the proportion of sales it generates from life science to over 60 percent. Its engineering activities for these markets in particular have therefore been combined in its new Process Engineering unit since January 1, 2003. This bundling of businesses should further improve the con-ditions for profitable growth. GEA plans to achieve this by exploiting synergies in distribution, pro-duction and logistics and by making further acquisitions. At the same time, it will accelerate the ex-pansion of its after-sales business. This service yields extremely high margins and, if intensified, can tie customers more firmly to the company.

Further Consolidation in Industrial Plant Engineering

Following its successful turnaround, mg’s industrial plant engineering business is being further con-solidated. This will principally entail measures aimed at improving returns. Its priorities are to strengthen its competitiveness by implementing structural improvements and to step up organic growth by devel-oping new proprietary technologies. The companies engaged in industrial plant engineering will con-tinue to reduce the number of processes they offer and the complexity of their business. In recent years they have consolidated their technology offering from roughly 400 processes to just over 100. At the same time, the proportion of proprietary processes has increased from 40 percent to 75 percent and is set to rise even further.

By developing their own innovative processes, the subgroups engaged in industrial plant engineering are increasingly securing themselves a unique selling proposition, expanding their market share and improving their growth prospects.

Their plan is to make further progress by forging individual cooperation agreements and alliances with other companies. This will enable existing synergies between cooperation partners to be exploited, for example in the field of research and development. This in turn will strengthen their market positions and competitiveness.

10.0

Focus and expansion of mg’s core competencies: engineering and chemicals

€billion Sales 1992/93 Sales 2001/02 Engineering Chemicals Other 4.2 4.0 1.6 1.5 0.4

(15)

Streamlining of Structures and Optimization of Processes

The ongoing development of the mg Group is being supported by the streamlining of management structures. This includes integrating mg’s holding company more closely with its operating business. In the future, for example, mg’s Member of the Executive Board responsible for the chemicals business will also be the CEO of Dynamit Nobel. In addition, the process of merging and consolidating businesses at mg’s subgroups is already underway. GEA has reorganized some of its activities, reducing the number of its business units from nine to seven in the process and strengthening growth businesses. Lurgi Lentjes has consolidated its activities and production facilities to a large extent, considerably improving its competitiveness.

mg is examining further options for streamlining and focusing its activities in both the mg chemical group and mg engineering. However, it will not be taking any final decisions until Germany’s new tax legislation has been enacted, so that it can take account of any potential effects.

A further focal point of mg’s fitness program is the optimization of back-office processes. This will generate considerable cost savings—also in terms of human resources—and improve efficiency. Further cost savings will flow from a reduction in the cost of materials and other operating expenses. Overall, this should ensure sustainable cost savings of € 100 million and markedly enhance the mg Group’s profitability.

Interview with Dr Kajo Neukirchen, Chairman of the Executive Board

What are mg’s primary goals for the next three years?

| First, to continue to cope well with the current eco-nomic crisis. Second, to achieve adequate profitability in industrial plant engineering. And third, to meet our target returns for the mg Group as a whole, con-siderably strengthening our profitable growth in the process.

How do you intend to achieve that?

| By increasing our sales and raising our profitability. Our fitness program will help us achieve this goal, lowering our break-even point and improving our return on sales, by which we measure profitable growth. At the same time, we plan to step up our sales & marketing and service activities in businesses that offer above-average potential for growth and value creation. We will also grow these businesses through capital spending, including acquisitions. Which businesses are achieving above-average growth?

| Mainly those that supply the life science markets, which comprise sectors such as food and beverages, pharmaceuticals, cosmetics and agrochemicals. At GEA, the main supplier to these markets is its pro-cess engineering business. However, GEA’s high-margin after-sales business also offers considerable potential for growth. At Dynamit Nobel, for example, the custom synthesis, specialty chemicals and medical technology businesses are growing particularly fast. We will therefore focus on these areas in particular. We aim to increase the proportion of sales we gene-rate from life science to over 50 percent.

What part does internationalization play in this process?

| A considerable one. We expect to see growing demand and higher capital spending particularly in our markets outside Germany. That is why we have ensured we are well positioned in all major regions of the world, already generating 74 percent of our sales abroad.

How does the disposal of solvadis fit this growth strategy?

|We will be divesting the remainder of our retailing and distribution activities at solvadis. We will then focus on value-added technology businesses in engineering and chemicals, where we naturally achieve a much higher return on sales than in our retailing activities.

Does this also apply to industrial plant engineering?

| Zimmer has been in profit and achieving good returns for years. Although we have made substan-tial headway with Lurgi and Lurgi Lentjes, we are nowhere near satisfied at present. Our prime goals here are to meet our profitability targets by further streamlining structures, reducing capacities and conti-nuing to focus on attractive markets and technolo-gies. Cooperation agreements may well be a useful way of consolidating our market positions. Where are you looking to make acquisitions?

| In general only where we can add substantial value, in other words primarily at GEA and Dynamit Nobel. The current economic climate is not exactly conducive to transactions of this kind, but we are not in any hurry.

What will the mg Group look like in five years’ time?

| I can’t tell you exactly. Markets and industries can change totally in five years. No strategy or structure should be a rigid dogma. The important thing is that we are capable of changing. This has always been, and will remain, one of mg’s strengths. Our strategy is still to focus on our core competencies of engineering and chemicals, to concentrate more on the growing life science markets, to continue to strengthen our market positions and to meet our profitability targets. However, we have set ourselves a time frame of less than five years in which to achieve these aspirations.

(16)

Sachtleben’s titanium dioxide pigments protect and add luster to paints. Nanoparticles are used to produce iridescent paints.

Dynamit Nobel uses plastic to manufacture the doors and the front and rear sections of the “smart” urban runabout.

Lurgi is a global market leader in the construc-tion of methanol plants. Methanol is used in fuel cells and as a gasoline additive. Bio-fuels: Lurgi technology is used to produce environmentally friendly bio-diesel from rape-seed and other oils.

(17)

example, mg companies are developing innovative plastic

components, manufacturing pigments for environmentally

friendly, solvent-free paints and building plants to produce

alternative fuels such as bio-diesel.

(18)

Consistent Investor Relations Activities Pay Off

In fiscal 2001/2002, mg’s Investor Relations department continued its policy of proactive and open communication with the capital markets. Key strategic issues were:

– market and technology leadership

– profitable organic growth and growth by acquisition

– systematic widening of margins by focusing the activities of business units, and

– optimization of the Group’s capital structure and improvement of its financial position in order to fund further growth.

During the year under review, mg presented these issues at numerous road shows, conferences and analysts’ meetings as well as in conference calls and face-to-face meetings at the major financial centers in Europe and North America.

Despite the difficult market environment, mg’s coverage by equity analysts continued to grow. In fiscal 2001/2002, over 20 institutions conducted detailed equity research on mg technologies ag.

Extensive Information for all Investors

mg is stepping up its use of the internet in its communications, especially with private investors. This is intended to ensure equal treatment of all investors. mg’s website (www.mg-technologies.com) provides price information, summaries of analysts’ recommendations and key figures on mg’s shares. Interested parties can download quarterly and annual reports as well as presentations from mg’s analysts’ meetings and telephone conferences. Under the section Shareholder Info/News/Newsletter Subscription, investors can order an online newsletter that contains regular press releases and infor-mation on topical Group issues. The Analysts’ Meeting at which the consolidated financial statements were presented was broadcasted online.

Extremely Difficult Market Conditions

2001 and 2002 were two of the worst stock market years on record. In the first half of fiscal 2001/2002 mg benefited from the strong performance of the DAX and MDAX on the back of the upturn in share prices in the aftermath of the terrorist attacks of September 11, 2001. From April 2002, however, grow-ing economic uncertainty, political unrest and fears of a war and further terrorist attacks caused stock indices around the world to plummet. The situation was worsened by the loss of investor confidence in the wake of various financial scandals. The DAX, for example, lost roughly half of its value between April and September 2002. On September 30, 2002, the DAX was down 35.7 percent on the end of September 2001. The MDAX, which contains mg’s shares, lost around 28 percent over the same period.

The mg Share. mg’s Share Holds its Ground in a Difficult

Market Environment.

While Germany’s leading share indices tumbled, mg’s share price recorded

a slight rise in the year under review, bucking the general trend. This

re-flected the Group’s encouragingly stable operating performance and its

proactive investor relations activities. In terms of market capitalization, mg

is now one of the top 40 companies in the DAX 100.

(19)

mg’s Share Price Remains Stable, Bucking the Trend

In fiscal 2001/2002, mg’s share price rose 5.5 percent, bucking the trend among domestic and inter-national stock indices.

The share price rose sharply in the run-up to the Annual Shareholders’ Meeting on March 28, 2002, climbing 104 percent from € 6.82 on October 1, 2001, to € 13.90 on March 19, 2002. Until June 30, 2002, mg was one of the best-performing shares, having gained 47 percent. In the fourth quarter of 2001/2002, however, the share price of mg technologies ag was no longer able to escape the general adverse trend. Although its share price had slumped to € 6.51 by the end of the fiscal year, this was still slightly above its level at the end of the prior year (€ 6.17).

Market Capitalization Increased: mg Now in the Top 40

The market capitalization of the mg Group rose around seven percent to € 1.25 billion. This enabled mg to considerably improve its Deutsche Börse AG ranking in the DAX 100 from 55th place to 36th at the end of September 2002. With an average daily turnover of 308,000 shares, trading volumes rose three percent compared to the previous year. At peak times in October 2001 and March 2002, up to 1.5 million shares were changing hands each day. 80 to 90 percent of the trading volume was settled using XETRA. In terms of trading volume, mg’s shares climbed from 45th place to 43rd in the DAX 100.

mg’s Shares Included in a Number of Benchmark Indices

Initiators Dow Jones and Sustainable Asset Management (SAM) confirmed mg’s membership of the Dow Jones Sustainability STOXX Index for 2002/2003. 183 European companies from various sectors that meet stringent financial, environmental and social criteria qualify for this index. mg’s overall performance—based on the sustainability criteria assessed by Dow Jones and SAM—is well above the industry standard.

mg Welcomes New Market Segmentation

mg welcomes the efforts of Deutsche Börse AG to improve transparency and investor confidence by reorganizing Germany’s stock indices. mg already meets all the basic criteria for the new Prime Standard: quarterly reports, internationally accepted accounting standards, a detailed financial calendar, at least one analysts’ meeting, ad hoc publications and regular reporting in both German and English. Within the Prime Standard, mg’s shares will form part of the MDAX. The reorganization of these indices will take effect on March 24, 2003.

Stable Shareholder Structure

Roughly 60 percent of mg’s shares are in free float. Thereof, institutional investors hold more than half. In terms of the regional breakdown, German investors hold the largest share. Further significant stakes are held in the UK and North America.

At September 30, 2002, members of mg’s Executive Board held 43,717 (2000/2001: 32,847) mg shares and 680,000 (2000/2001: 490,000) stock options on mg technologies ag shares. Members of the Supervisory Board held 1,500 (2000/2001: 1,700) shares and 60,000 (2000/2001: 50,400) stock options.

The total number of shares increased from 193.0 million to 193.3 million at September 30, 2002, owing to the exercise of rights under the stock option program and the exchange of further GEA shares into mg stock.

Indices

mg’s shares are included in the following indices: MDAX, DAX 100 CDAX Industries Dow Jones Stoxx 300 Dow Jones Euro Stoxx 650 Dow Jones Stoxx Industrials Dow Jones Euro Stoxx Industrials MSCI Germany Small Cap Dow Jones Sustainability Stoxx

60 % of shares still in free float

mg’s four largest shareholders own around 40 % of its share capital:

Allianz 13.020 %

Dr Otto Happel 10.025 % Deutsche Bank 9.040 % Kuwait Investment Office 7.859 %

(20)

Share Buyback Program Expired: mg Sells all Treasury Stock

mg’s Annual Shareholders’ Meeting on March 30, 2001, had authorized the Executive Board to repurchase up to ten percent of mg’s own stock. The Executive Board utilized this authorization to buy back 345,559 shares in fiscal 2001/2002 up to March 2002. At one point, mg therefore held 2,143,002 of its own shares. After it had sold these mostly to an institutional investor during the course of the year, mg no longer held any of its own shares at the end of the fiscal year. The authorization given by the Annual Shareholders’ Meeting to repurchase mg’s shares does not extend beyond September 30, 2002, as the program proposed by the Executive Board did not achieve the necessary majority at the Annual Shareholders’ Meeting on March 28, 2002.

Dividend Continuity Maintained

Although its earnings came in lower in 2001/2002, mg has decided to maintain continuity in its dividends. The Executive Board will therefore propose to the Annual Shareholders’ Meeting on June 3, 2003, that the dividend of € 0.25 remain unchanged.

Corporate Governance Recommendations Already Implemented

mg technologies ag regards the issue of corporate governance as an integral part of any management policy based on responsibility, transparency and value creation. It is used to monitor, safeguard and enhance the mg Group’s business activities and is intended to boost confidence on the part of investors and the capital markets.

In March 2001, mg became one of the first publicly traded German companies to adopt its own corporate governance guidelines and publish them on its website. These were based on the proposals of the German Corporate Governance Commission. After the German government’s commission had pub-lished its draft for Germany’s Corporate Governance Code in February 2002, mg reviewed its principles with a view to possible improvements. Almost all of the more than 60 recommendations made by the Code were already contained in mg’s Articles of Association and in the rules of internal procedure for its Executive Board and Supervisory Board. There are therefore only two deviations, which are documented as follows in the statutory declaration of compliance submitted on November 28, 2002, pursuant to section 161 of the German Joint Stock Corporation Act (AktG):

Mr. Hornung, are you satisfied with the performance of mg’s share price during the year under review?

| I have mixed feelings in this respect. If you compare its performance to that of the major stock indices, mg naturally looks quite respectable. After all, our share price rose slightly while the DAX, for example, fell by more than one-third. On the other hand, I can well understand that shareholders are not satisfied with the current share price, which, according to leading ana-lysts, does not adequately reflect the true value of the company.

Where do you see your share price in twelve months’ time?

| We never give any forecasts about mg's share price. “The market is always right”, as an old stock market saying goes. We can't insulate ourselves from the

gene-ral market trend. What we can do, however, is to create the right conditions needed to bring our share price back up to the sort of level where most analysts think it should be. And we are very optimistic in this respect. What are the grounds for this optimism?

| Despite the less-than-encouraging outlook for the global economy, the Executive Board believes that mg will report good operating results for the fiscal year that started on January 1, 2003. We are planning further organic growth as well as growth by acquisitions. We expect to make progress in focusing on our core busi-nesses and strengthening our cash flow. We have already initiated the necessary action, as was already apparent in the fourth quarter of fiscal 2001/2002, and the impact of this action will become ever stronger going forward. Many analysts who follow mg closely therefore believe we can raise our share price substantially from its current level.

(21)

– The post of chairman and membership of the Supervisory Board’s committees are not criteria that determine the level of compensation paid to members of the Supervisory Board (Code subpara-graph 5.4.5, subsection 1, sentence 3).

– The compensation paid to members of the Supervisory Board of mg technologies ag does not con-tain any variable component that is dependent on either the financial position or the performance of mg technologies ag (Code subparagraph 5.4.5, subsection 2, sentence 1).

Bond Ratings Unchanged

The mg Group’s continued success is reflected in the unchanged ratings awarded by the rating agencies Fitch IBCA (BBB) and Moody’s (Baa3) for the bond issued by mg technologies finance B.V.

Key per-share figures

2001/2002 2000/2001

Number of shares outstanding (at September 30, in millions) 193.3 193.0 Weighted average number of shares outstanding, in millions 192.3 191.2

Basic earnings per share (in €) 0.99 1.05

Cash provided by operating activities (in €) 1.07 2.04

Consolidated shareholders’ equity excluding minority interest (in €) 10.59 10.09

Dividend (in €) 0.25 * 0.25

Share price (at September 30, in €) 6.51 6.17

Share price (in €) High 13.90 15.03

Low 6.00 4.36

Market capitalization (at September 30, €million) 1,252 1,180

Price/earnings ratio High 14.04 21.8

Low 6.06 6.3

Price/equity ratio High 1.31 1.5

Low 0.57 0.4

*Proposed dividend

Performance of mg’s share price against the DAX and MDAX

10/2001 11/2001 12/2001 1/2002 2/2002 3/2002 4/2002 5/2002 6/2002 7/2002 8/2002 9/2002 200 % 175 % 150 % 125 % 100 % 75 % 50 % mg DAX MDAX

(22)

High-power batteries containing lithium salts pro-duced by Chemetall ensure your laptop doesn’t run out of power when you’re on the road.

Plastics are an essential feature of everyday life: polyethylene and propylene are produced in plants built by Lurgi.

Safety in the air: Chemetall is one of the leading providers of maintenance chemicals for the aerospace industry.

Crystal clear: insulating glass and safety windows based on Chemetall technology protect against noise and unwanted visitors.

(23)

mg Group’s expertise ensures that the world is mobile and can

communicate.

(24)

Economic Environment

European Economy Falls Short of Forecasts

Hopes of a global economic recovery failed to materialize during the period under review. After a brief recovery up to the spring of 2002, global economic growth—which had been weak at the best of times—slowed markedly towards the end of fiscal 2001/2002. This was mainly due to the slowing U.S. economy. The fragile situation was further exacerbated by regional and political tensions, espe-cially in the Middle East, by concerns about rising commodity prices and by the collapse of share prices on the stock market. These factors impacted to varying degrees on almost all the regions in which the mg Group operates.

Following a recession in the second half of 2001, the German economy initially stabilized at a very low level in early 2002. However, hopes of a sustained recovery were short-lived: according to the Federal Statistical Office, GDP in the first three quarters of 2002 rose by only 0.3 percent on the same period last year.

In the European Union too, the economic recovery turned out much weaker than expected. EU GDP rose by only 0.5 percent in the first half of 2002. The International Monetary Fund (IMF) is forecast-ing growth of 0.9 percent for the year as a whole. The ailforecast-ing EU economy also impacted on the coun-tries of Central and Eastern Europe. Nonetheless, growth rates in this region were still well above the EU average.

U.S. Economy Remains Sluggish

Following last year’s recession, the U.S. economy started this year on a marked upward trend. In the second quarter of 2002, however, the American economy failed to buck the general downward trend. A sharper downturn was only prevented by relatively stable private consumption. The IMF is fore-casting U.S. GDP growth of 2.2 percent for 2002 as a whole.

Management Report. Good Performance in a Difficult Year.

The global economy in fiscal 2001/2002 was hit by a severe slowdown

in business activity. The mg Group turned in a good performance in this

difficult environment. At

€

8,585.8 million, sales almost matched the prior

year (

€

8,817.7 million). At

€

320.3 million, pre-tax earnings declined by

around 13 percent (prior year:

€

368.1 million, excluding goodwill

amorti-zation). Underlying earnings increased slightly to

€

347.6 million. This

success was largely due to mg’s continuation of its fitness program and its

strategic focus on growth markets in engineering and chemicals.

(25)

Chinese Economy Growing

Asia’s economic performance varied from country to country. The East Asian emerging markets per-formed well. The Chinese market, which is important to the mg Group, reported strong growth, buck-ing the global economic trend. The Japanese economy stabilized after of the most severe recession since World War Two. Nonetheless, Germany’s leading economic research institutes and the IMF forecast a 0.5 percent decline in GDP for 2002.

Performance of mg engineering’s Markets Varies

The performance of the engineering markets relevant to mg varied. In the prior year, GEA had bene-fited from the pent-up demand in U.S. power-plant construction. This strong demand returned to a more normal level. In the U.S. there were signs of growing demand for bio-ethanol plants, which boosted Lurgi’s business. Lurgi also benefited from the ongoing growth in the market for methanol plants. Methanol is becoming increasingly important as a multipurpose synthetic raw material in the chemical and petrochemical industries. The conditions in the market for environmental engineering continue to be difficult, particularly in Germany and Europe, which hit Lurgi Lentjes especially hard. The polymer and synthetic fiber industries relevant to Zimmer around the world were characterized by a cautious propensity to invest.

The German nutrition industry also felt the effects of the ongoing weak economy: sales in Germany’s fourth-largest industrial sector fell in the first nine months of 2002 by a nominal 0.7 percent com-pared to the same period last year. The dairy farm systems industry performed well, reporting output growth of 18 percent in the first half of 2002, according to the German Federation of the Engineering Industries (VDMA). GEA benefited from this trend.

Encouraging Performance in the Pharmaceutical Industry

The pharmaceutical industry remained relatively unscathed by the turmoil in the global economy: in Germany, production of pharmaceuticals rose by around five percent in the first half of 2002, accord-ing to the German Chemical Industry Association (VCI). Dynamit Nobel’s custom synthesis business in particular benefited from the strong performance of the pharmaceutical market.

The chemical industry saw a slowdown in the upward trend evident since the beginning of the year. Germany remained characterized by the continued weakness in domestic demand for chemical prod-ucts. According to calculations by the VCI, Germany’s chemical production in the first half of 2002 was up only 1.7 percent year on year.

Business activity in the automotive industry—a major customer for Dynamit Nobel—remained rela-tively low worldwide. In Germany, the German Association of the Automotive Industry is forecasting a year on year fall of over three percent in new car registrations in 2002.

(26)

Situation of the Company

Productivity Raised Substantially

Faced with the continued weakness of economic activity, the mg Group launched a fitness and growth offensive, which focuses on optimizing processes in mg’s back-office functions and reducing its cost of materials. As a result, mg managed to substantially raise its productivity—a key benchmark for competitiveness and efficiency—by 8.2 percent (prior year: 4.3 percent), further strengthening its earnings power.

At the same time, mg continued its focus on dynamic growth markets. These include life sciences (pharmaceuticals, nutrition/agrochemicals and cosmetics), specialty chemicals and, over the long term, the market for environmental engineering. In many businesses, mg managed to improve its market positions and raise its sales despite the global recession. Coupled with its fitness program, this led to improvements in earnings in almost all subgroups.

Sales

Adjusted Sales Virtually Unchanged Year on Year

Although the mg Group’s sales during the year under review fell 2.6 percent year on year to

€8,585.8 million (prior year: €8,817.7 million), sales adjusted for disposals and acquisitions remained virtually unchanged.

During the year under review, sales at mg engineering (before consolidation) rose from €4,167.4 mil-lion to €4,181.1 million. GEA raised its sales by 1.7 percent from €2,886.0 million to €2,935.3 mil-lion. With sales of €497.3 million, Lurgi was virtually unchanged on the prior year (€499.1 million). At €485.6 million, Lurgi Lentjes’ sales were down year on year (prior year: €516.1 million). Zimmer’s sales of €262.9 million almost matched their prior-year level (€266.2 million).

Sales in the mg chemical group (before consolidation) came to _€3,952.3 million during the year under review. This represents a decrease of 2.3 percent (prior year: €4,044.3 million). This was mainly due to weaker demand from its main customers in the automotive, construction, chemical and electronics/ electrical engineering industries and to changes in the group of consolidated companies at Dynamit Nobel. Dynamit Nobel’s sales of €2,511.5 million thus failed to attain their prior-year level of

€2,638.8 million. By contrast, sales at solvadis advanced from €1,405.5 million to €1,440.8 million.

3,985

Sales of mg engineering and mg chemical group

€million 1999/00 2000/01 2001/02 mg engineering mg chemical group 4,167 4,181 4,044 4,215 3,952 2,720

Domestic and foreign sales of the mg Group

€million 1999/00 2000/01 2001/02 Domestic Foreign 2,399 _2,264 6,419 6,077 6,322

Sales per region in %

39.1

Europe

(incl. CIS, excl. Germany)

26.4 Germany 11.8 Asia/Australia/Middle East 2.1 Africa 4.0 Central/South America 16.6 North America

(27)

New Orders and Order Books

Volume of New Orders Satisfactory Overall

In the year under review, the volume of new orders at mg engineering came to €4,116.1 million. This was roughly four percent down on the high prior-year figure of €4,290.6 million. One of the main reasons for this slight decrease was the postponement of industrial plant engineering projects. It is, however, encouraging to see that the earnings quality and risk structure of new orders have improved. This is largely due to a more rigorous selection procedure in the acceptance of orders and a strict cost management regime.

GEA reported new orders of €2,905.6 million, as expected falling short (by 2.5 percent) of the very high level in the prior year (_€2,981.0 million). Its order book declined to _€1,013.7 million (prior year: €1,087.9 million).

During the year under review, Lurgi’s volume of new orders, at €576.9 million, was down on the prior year (€729.9 million). Lurgi Lentjes increased its volume of new orders by 15 percent from

€355.0 million to €408.3 million. With new orders of €225.3 million, Zimmer matched the prior-year level of €224.7 million. At the balance sheet date, Lurgi’s order book stood at €832.9 million (prior year: €786.1 million), while Lurgi Lentjes’ order book came to €502.0 million (prior year:

€581.7 million). The order book at Zimmer totaled €234.8 million, falling significantly short of the prior-year figure of €325.7 million.

At the end of fiscal 2001/2002, mg engineering’s order book therefore totaled €2,583.4 million (prior year: €2,781.4 million).

Orders received by mg engineering

€million 2,640 2,906 GEA 2,981 1999/00 2000/01 2001/02 391 577 Lurgi 730 1999/00 2000/01 2001/02 444 408 Lurgi Lentjes 355 1999/00 2000/01 2001/02 214 225 Zimmer 225 1999/00 2000/01 2001/02

(28)

Net Assets, Financial Position and Results of Operations

Since October 1, 2001, the mg Group has not been amortizing goodwill over its useful life. Instead, goodwill is regularly subjected to an impairment test and, where necessary, written down. The impair-ment test carried out during the year under review revealed no need for write-downs. In order to improve the comparability of the statements of income and certain key figures, the relevant figures from the prior year have also been stated excluding goodwill amortization.

Underlying Earnings up Year on Year

In fiscal 2001/2002, the mg Group responded to the difficult economic environment by implementing additional fitness and growth measures, which enabled it to almost fully compensate for the adverse economic trends. This is illustrated by its earnings adjusted for one-time effects: underlying earnings rose 1.0 percent to €347.6 million (prior year: €344.2 million). Including one-time effects, consoli-dated pre-tax earnings came to €320.3 million after €368.1 million in the prior year (excluding goodwill amortization). This amounts to a decrease of 13.0 percent.

In fiscal 2001/2002, one-time effects again related to income and expenses resulting from disposals, restructuring costs and expenses in connection with the application for a special audit. They resulted in a net expense of €27.3 million.

mg engineering Raises Earnings Substantially

With pre-tax earnings of €249.9 million, mg engineering (before consolidation) exceeded its prior-year earnings of €177.7 million by 40.6 percent. Adjusted for one-time effects, its pre-tax earnings rose to €265.9 million (prior year: €192.7 million). The companies engaged in industrial plant engineering and GEA all contributed to this earnings growth.

GEA strengthened its earnings (prior year: €181.9 million) by 27.3 percent year on year, reporting record earnings of €231.6 million. Adjusted for one-time effects, pre-tax earnings advanced to

€240.8 million (prior year: €191.9 million).

Lurgi also improved its performance, reporting pre-tax earnings of €8.3 million after €7.0 million in the prior period. Lurgi Lentjes reduced its losses to €6.3 million (prior year: losses of €18.4 mil-lion). Zimmer also improved, posting pre-tax earnings of €16.3 million compared to €7.2 million in fiscal 2000/2001.

mg chemical group Raises Underlying Earnings

The weakness of many sectors that are customers of the chemical industry also hit the business per-formance of the mg chemical group. These effects were largely offset by fitness and growth measures. At €277.4 million, pre-tax earnings fell short of the prior-year figure (€322.6 million). Adjusted for one-time effects, however, pre-tax earnings rose 2.2 percent from €276.0 million to €282.0 million.

During the year under review, Dynamit Nobel reported earnings of €249.8 million, which was down on the prior-year figure of €290.5 million. However, this prior-year figure was strongly influenced by proceeds from disposals. Adjusted for one-time effects, pre-tax earnings grew 3.4 percent from

€243.9 million to €252.1 million. Dynamit Nobel benefited from the timely measures it imple-mented to boost its growth and efficiency.

The pre-tax earnings of €27.6 million reported by solvadis were down on the prior year (€32.1 mil-lion). Pre-tax earnings mg engineering €million 178 266 193 2000/01 250 2000/01 161 2001/02 including goodwill amortization excluding goodwill amortization excluding goodwill amortization and one-time effects

Pre-tax earnings mg chemical group €million 323 282 276 2000/01 277 2000/01 301 2001/02 including goodwill amortization excluding goodwill amortization excluding goodwill amortization and one-time effects

Pre-tax earnings mg Group €million 368 348 344 2000/01 320 2000/01 294 2001/02 including goodwill amortization excluding goodwill amortization excluding goodwill amortization and one-time effects

(29)

Net Income Down Slightly Year on Year

While pre-tax earnings declined 13 percent year on year, the net income of €189.6 million was slightly down (prior year: €200.9 million). After the prior-year net tax expense of €160.9 million (taxation ratio: 43.7 percent) was increased by Germany’s tax reform, the tax expense in fiscal 2001/2002 came to €121.6 million (taxation ratio: 38.0 percent). This trend was partly offset by higher minority interests, which rose from €6.3 million in the prior year to €9.1 million in fiscal 2001/2002.

Earnings per Share Virtually Unchanged

In fiscal 2001/2002, basic earnings per share came to €0.99 after €1.05 on a comparable prior-year basis. The decrease of 5.7 percent resulted from the lower net income and from the fact that the average number of mg shares outstanding during the year rose from 191 million to 192 million. The reasons for this rise in the number of shares outstanding were the ongoing exchange of GEA shares into mg stock, the exercise of entitlements under the stock option program and mg’s disposal of all of its own shares.

Dividend of €0.25

The Executive Board and the Supervisory Board will propose to the Annual Shareholders’ Meeting on June 3, 2003, that an unchanged dividend of €0.25 per share be paid. mg technologies ag will then be paying out a total distribution of €48.3 million (prior year: €48.2 million).

Slight Fall in ROS and ROCE

Despite the economic downturn, mg’s key profitability ratios fell only slightly. The fact that they remained fairly high underlines the strong performance of the mg Group in what was a difficult environment. The return on sales (ROS) came to 3.7 percent (prior year: 4.2 percent), while the return on capital employed (ROCE) amounted to 9.8 percent (prior year: 11.5 percent). The cash flow return on investment (CFROI) improved slightly from 10.1 percent in 2000/2001 to 10.4 percent. Adjusted for one-time effects, ROS came to 4.0 percent (prior year: 3.9 percent), ROCE to 10.4 per-cent (prior year: 11.0 perper-cent) and CFROI to 11.0 perper-cent (prior year: 9.5 perper-cent).

Consolidated Statements of Income in Short

Consolidated Consolidated Consolidated

Statement Statement Statement

of Income of Income of Income adjusted*

2001/2002 2000/2001 2000/2001 €million €million €million

Revenues 8,585.8 8,817.7 8,817.7

Gross margin 1,857.6 1,832.6 1,832.6

Income before income taxes and minority interests 320.3 294.4 368.1

Income taxes – 121.6 – 75.9 – 79.7

One-time tax effects from deferred taxes** – – 81.2 – 81.2

Minority interests – 9.1 – 5.8 – 6.3

Net income 189.6 131.5 200.9

*Prior year figures are presented excluding goodwill amortization of € 73.7 million for better comparison

**Tax expense of €–178.9 million due to changes in German tax laws and tax income from deferred taxes in the U.S. of € 79.9 million

Development of return on sales (ROS) in % 4.2 4.0 3.9 2000/01 3.7 2000/01 3.3 2001/02 including goodwill amortization excluding goodwill amortization excluding goodwill amortization and one-time effects

(30)

Value Added

Despite the adverse economic climate, mg again managed to increase its intrinsic enterprise value. The weighted average cost of capital (WACC) came to 7.7 percent (prior year: 8.8 percent). The value margin—the difference between ROCE and WACC—stood at 2.1 percent (prior year: 2.7 percent). The economic value added amounted to €92 million (prior year: €121 million).

Sound Financing

On the whole, the balance sheet shows a balanced financing of total assets. Liabilities to banks amounted to €683.6 million (prior year: €715.9 million), while total liabilities came to €2,703 mil-lion (prior year: _€2,802 million). Cash and cash equivalents totaled _€187.6 million (prior year:

€225.4 million). The net position amounted to minus €715.9 million after minus €700.0 million in fiscal 2000/2001. However, if the prior-year net position is adjusted for the ’non-genuine’ repur-chase agreements of €312.9 million, which were not carried out in fiscal 2001/2002, the net position improves by €297.0 million. The gearing ratio improved to minus 35.1 percent (prior year: minus 36.3 percent) during the year under review.

Consolidated Balance Sheets in Short

9/30/2002 9/30/2001 € ’000 €‘000 Assets Fixed assets 3,263.3 3,281.5 Non-fixed assets 2,649.1 2,707.6 Deferred taxes 811.2 894.9 Prepaid expenses 27.5 26.4 Total assets 6,751.1 6,910.4

Liabilities and shareholder’s equity

Shareholder’s equity 2,036.8 1,928.9 Minoritiy interests 42.4 55.4 Accrued liabilities 1,851.7 1,967.4 Liabilities 2,702.8 2,802.4 Deferred taxes 66.0 93.6 Deferred income 51.4 62.7

Total liabilities and shareholder’s equity 6,751.1 6,910.4 Development of return on

capital employed (ROCE) in % 11.5 10.4 11.0 2000/01 9.8 2000/01 10.0 2001/02 including goodwill amortization excluding goodwill amortization excluding goodwill amortization and one-time effects

(31)

Shareholders’ Equity Increased

Shareholders’ equity totaled €2,037 million (prior year: €1,929 million) at the balance sheet date. This increase is essentially due to the Group’s earnings. The Group’s capital ratio rose to 30.2 per-cent (prior year: 27.9 perper-cent).

Cash Flow

Fitness Program Strengthens Cash Flow

The program of fitness measures implemented within the mg Group also boosted cash flow. DVFA/SG cash flow came to €456.6 million, up €8.9 million year on year. Cash provided by operating activi-ties fell from €389.6 million in the prior year to €205.9 million in fiscal 2001/2002. However, if one includes the sales of receivables of €312.9 million (’non-genuine’ repurchase agreements) carried out in the prior year, which were not transacted during the year under review, cash provided by operating activities rose considerably on a comparable basis.

At minus €187.6 million, cash used for investing activities remained virtually unchanged year on year (prior year: minus €182.6 million). Purchases of property, plant and equipment and intangible assets were reduced by 15 percent. By contrast, the acquisition of the remaining shares in Safic-Alcan reduced the cash flow under this item in fiscal 2001/2002.

If one includes the ’non-genuine’ repurchase agreements no longer carried out in fiscal 2001/2002, the quality of the free cash flow of €18.3 million (prior year: €206.9 million) improves substantially. The free cash flow was used to repay loans. Cash used for financing activities amounted to minus

€41.7 million (prior year: minus €334.1 million).

mg Group’s equity ratio increased

8 6 4 2 0 – 2 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1998/99 1999/00 2000/01 2001/02 5.8 – 2.5 % 2.2 % 6.7 % 10.7 % 14.4 % 15.4 % 15.5 % 25.8 % 27.9 % 30.2% 4.5 4.0 3.5 3.5 5.5 6.8 6.9 7.4 7.2 ■Total assets (€ bn); HGB ■Total assets (€ bn); U.S. GAAP