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Rating Action:

MOODY'S ASSIGNS Baa1 RATING TO PROPOSED SENIOR BONDS OF J.M. VOITH (GERMANY); RATING OUTLOOK STABLE

26 Jun 2001
MOODY'S ASSIGNS Baa1 RATING TO PROPOSED SENIOR BONDS OF J.M. VOITH (GERMANY); RATING OUTLOOK STABLE

Approximately EUR200 Million of Debt Rated.

Frankfurt, June 26, 2001 -- Moody's Investors Service has assigned a Baa1 long-term rating to the proposed EUR200 million bond issue of J.M. Voith AG (Voith), the German capital goods company. The ratings for the group's outstanding bond issues have been confirmed at Baa1. The outlook for the ratings is stable.

Moody's bases the Baa1 ratings on Voith's strong positions in its key capital goods markets, the company's expansion into more stable paper machine consumables and services activities, and a continued focus on debt reduction from free cash flows in line with management's conservative financial policies and the group's stable shareholder base. The ratings, however, also factor in the cyclical nature of the majority of Voith's activities, ongoing integration work at recent acquisitions and joint ventures, the continued need to raise efficiencies to offset price pressures in its industries, and the potential for further acquisitions despite the group's limited access to new equity.

Voith's strategy is to stabilize overall performance, by expanding the business portfolio towards the consumables and service-related sectors through acquisitions and joint ventures, and thus reducing its relative dependence on the lower margin and cyclical paper machine business. While the acquisition of Scapa, the UK-based paper clothing company, and the recent increase of Voith's stake in DIW Deutsche Industriewartung (currently 49.8%), a German industrial services provider, are expected to strengthen the services side of Voith, the pooling of activities with Siemens in hydro power generation (Voith 65%) has consolidated its position in this market segment. Especially the services business is expected to offer more stable, higher margins and good growth potential driven by the outsourcing trend at customers.

Nevertheless, the paper machine division remains Voith's biggest revenue contributor (40% of revenues). Operating trends have stabilized after the industry exit of Beloit (subsidiary of Harnischfeger). With only two major competitors left (i.e. Valmet (Baa2) and Voith), the new competitive landscape is expected to stabilize price levels. Furthermore the recently observed more disciplined capacity additions at customers could potentially smoothen the magnitude of cyclical swings compared to historical levels. In all of its segments, though, Voith will have raise efficiency continuously to mitigate the industry-wide price pressures and cushion current weakening economic trends.

Following the present digestion phase, in which Voith will integrate the acquired businesses and seek to reduce debt, Moody's sees potential for further acquisitions and joint ventures to complement organic growth and build-out the service related activites at Voith. These will likely be moderately sized deals given the already high consolidation degree in the group's core markets and Voith's currently elevated debt levels. Moody's expects management to achieve a material debt reduction before new capital investments are pursued, since growth will have to be funded from internal resources and debt financing in view of the limited access to equity as a family-owned entity. The Voith family supports this strategy and a conservative balance sheet structure. Proceeds from the proposed bond will be used to refinance short-term bank debt and thus lengthen the maturity profile.

The ratings outlook is stable. Voith plans to reduce debt substantially from free cash flow generated, which will further solidify its position within the Baa1 rating category and provide flexibility for moderate acquisition activity.

J.M. Voith AG is the operative management holding of The Voith Group of Companies, headquartered in Heidenheim, Germany, a diversified mechanical engineering concern with leading positions in paper machine technology, paper machine clothing, hydro power generation and selected niches of power transmission. Total group sales per fiscal year September 30, 2000 amounted to EUR2.5 billion.

Frankfurt
Wolfgang Draack
Senior Vice President
European Corporates
Moody's Deutschland GmbH
+49 69 707 30 700

Frankfurt
Daniella Lemmer
Analyst
European Corporates
Moody's Deutschland GmbH
+49 69 707 30 700

No Related Data.
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