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Rating Action:

MOODY'S CHANGES MG TECHNOLOGIES AG'S OUTLOOK FROM DEVELOPING TO POSITIVE

15 Oct 2004
MOODY'S CHANGES MG TECHNOLOGIES AG'S OUTLOOK FROM DEVELOPING TO POSITIVE

Approximately Euro 140 Million in Debt Securities Affected

London, 15 October 2004 -- Moody's Investors Service today changed the outlook of mg technologies ag (mg or the company) from developing to positive. Concurrently, Moody's also affirmed the following ratings:

- Ba1 senior implied rating of mg technologies ag;

- Ba1 rating of mg technologies ag's Euro 140 million (previously Euro 300 million) eurobonds due 2005; and

- Ba1 unsecured issuer rating of mg technologies ag.

The outlook change primarily reflects Moody's view that mg's liquidity and financial flexibility has improved significantly following the successful disposal of the majority of mg's chemical activities. In addition, it reflects Moody's expectation that the future operating performance of mg will benefit from both the improving macro-economic environment and the impact of restructuring and rationalisation programmes which have been undertaken to date, but also recognises the heightened execution risk associated with the company's acquisition strategy and the need for the company to curtail losses in its industrial plant engineering division.

There is likely to be further upward pressure on the rating if the company is able to demonstrate improved profitability at its industrial plant engineering division as well as a sustained improvement in operating performance for the group as a whole, which is expected to be driven by the impact of cost reduction strategies which have been initiated to date (e.g. the downscaling of head office costs) combined with increased volumes resulting from improved operating conditions.

Whilst it is Moody's expectation that the company will purchase up to 10% of its share capital and may undertake debt-financed bolt-on to medium sized acquisitions in order to strengthen or complement the core operations of GEA, any acquisitions or distributions to shareholders resulting in deterioration of credit metrics beyond the company's stated financial gearing target of c. 25 - 30% is likely to constrain the rating. In addition, whilst it is considered unlikely at this juncture, a deterioration in the underlying operational performance of GEA, the group's core business, could result in downward pressure on the rating.

Since the announcement of mg's strategic realignment to focus on process engineering and process equipment (in particular its GEA business) in October 2003, the company has successfully divested of both solvadis and four of the five divisions of Dynamit Nobel at valuations in line with Moody's expectations. As a result, the company has significantly reduced its level of indebtedness and, following the receipt of the Dynamit Nobel proceeds in July 2004, currently has a net cash position despite the delay in the disposal of Dynamit Nobel's Plastics division following the announcement in September that the sale to Flex-N-Gate Corporation had fallen through.

The current rating balances the benefits of mg's improved financial flexibility against the near term challenges that the company currently faces, which include avoiding the recurrence of loss making orders in plant engineering and keeping the cash cost of restructuring and project losses low. It is Moody's expectation that cash costs of restructuring will continue through-out 2004 and into 2005, and that industrial plant engineering will break-even this year. Thereafter, exceptional costs are expected to decline and future loss making contracts should be avoided or significantly reduced following changes in mg's order selection and risk management systems for its plant engineering division.

More positively, the rating also continues to recognise the solid business position of GEA and the expected improvements in group margins which should be realised from the restructuring measures. However, the rating also factors the increased business risk associated with the execution and integration of future acquisitions, which have yet to be clearly defined.

Headquartered in Frankfurt, Germany, mg technologies ag is an internationally operating technology group focussed on specialty mechanical engineering - especially on process engineering and components - and plant engineering.

London
David G. Staples
Managing Director
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Nicole Guest
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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