Financial Situation

Significant increase in operative cashflow

MTU has significantly improved its financial situation in 2005. The cashflow from operating activities has approximately quadrupled from €72.9 million in 2004 to €290.1 million. Decisive factors in this case were improvements in the working capital and the increased profit in the operational business. Furthermore, unusually high advance payments were received from customers in the military engine business. The cash used in investing activities increased by 36.8% to €81.8 million for the year ended December 31, 2005, due to higher additions to fixed assets and intangible assets.

The positive development of the operational business of MTU in 2005 is underscored by the free cashflow, the balance from the cashflow from operating activities and the cash used in investing activities. Free cashflow improved in 2005 to €208.3 million after €13.1 million the year before. Its issue of 15 million shares in June 2005 has earned the company equity funds in the amount of €294.7 million after deduction of expenditures for going public. MTU has applied these funds and a large portion of the positive cashflow from its operative activities for the repayment of loans. The funds used in the cashflow from financing activities amounted to €227.2 million as compared to €190.7 million the year before.

Significant reduction of financial debt

In 2005, MTU reduced its net financial debt by 72% using funds from going public and from the positive development of its operative business. The following table shows the net debt of the company as of December 31, 2005, compared to the previous year:

In September 2005, MTU prepaid €80 million of the high yield bond set up in March 2004, followed by another €30 million in November 2005. Taking into account the accrued interest, these upfront repayments reduced the outstanding amount of the bond with an interest of 8.25 % to €168.4 million. In 2005 the company furthermore repaid the loan from DaimlerChrysler in the amount of €185.5 million that had been granted at the time DaimlerChrysler sold MTU. The company also repaid the loans from related companies Blade Lux Holding Two S.a.r.l and Forex UK Ltd. in the amount of €162.1 million. On top of that, MTU reduced its liabilities to banks. These amounted to €17.0 million at the end of 2005 as compared to €174.2 million the year before.

In contrast, liabilities from finance leasing increased by €1.3 million to €53.2 million in 2005. MTU uses this favorable form of financing for the utilization of land and buildings at MTU Maintenance Hannover GmbH by means of a long-term lease agreement. Additionally, MTU uses finance leasing for the long-term lease of engines for the “e-pool services” – the company leases out engines to customers for the duration of maintenance and repair work.

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