Speech at the 102^nd General Meeting of GILDEMEISTER Aktiengesellschaft

The actual speech is final!

Speech at the 102^nd General Meeting of GILDEMEISTER Aktiengesellschaft on 14 May 2004

I would also like to welcome you, on behalf of the Board, to our 102^nd General Meeting in Bielefeld.

Ladies and Gentlemen, Shareholders,

In the 2003 financial year, GILDEMEISTER has been able to hold its own despite an internationally tense environment! Behind us lies a difficult but satisfactory year, when compared to the rest of our branch, in which we mainly relied on the strength of our earning power. Sales were Euro 977.8 million (-5%) and at Euro 981.8 million, the order intake achieved the level of the previous year. As announced, we were able to achieve a positive pre-tax result for the entire year. The EBIT was Euro 34.7 million. The EBT was Euro 10.3 million. This means we realised a results swing (EBIT and EBT) of around Euro 18 million. After taxes, GILDEMEISTER still had an annual group loss of Euro 3.6 million. As a result of the payment from affiliated companies, GILDEMEISTER Aktiengesellschaft finished with a balance sheet profit of Euro 44.7 million. GILDEMEISTER shares also performed positively in 2003.

Before I elaborate on the business in 2003, let me firstly report about the international development of the machine tools industry. The worldwide demand continued to decline (-6%). Consumption was Euro 32.1 billion. China – for the first time in 2002 the world’s largest sales market for machine tools– increased its leading position: consumption in China was Euro 5.8 billion, which is around 18% of the world’s consumption. In second place was Japan with 14% and third place was occupied by Germany (12%), followed by the USA and Italy.

Worldwide production decreased by 6% to Euro 32.1 billion as well and therefore fell below the level of 1997. The largest producer was again Japan with Euro 7.0 billion with Germany in second place with Euro 6.7 billion, followed by Italy, China and the USA.

The order intake received by German machine tools manufacturers again decreased by 5% to Euro 8.4 billion. As in the previous year, production also declined; it fell to Euro 8.8 billion (-8%).

In the financial year 2003, GILDEMEISTER has been able to hold its own despite an internationally challenging environment! Our turning and milling technology, together with our ultrasonic and laser technology were impressive worldwide as a result of user-oriented and forward-looking innovations.

As at 31 December 2003, the group consisted of GILDEMEISTER Aktiengesellschaft as the parent company and affiliated companies and their subsidiaries. It includes 11 production works and 50 sales and services sites. The report includes all group companies over which GILDEMEISTER Aktiengesellschaft exercises a controlling influence. In order to focus our participation activities and in the interests of a high degree of flexibility, we ask you, dear shareholders, to approve the Control and Profit-and-Loss Transfer Agreement with GILDEMEISTER Beteiligungen AG in accordance with Agenda Item 5.

In the last business year, our order intake reached Euro 981.8 million, thereby reaching the level of the previous year. Domestic orders of Euro 457.0 million and international orders of Euro 524.8 million remained constant.

DMG Vertriebs und Service GmbH also had to prove itself against intense competition in 2003. The Japanese competition was strong again as it benefited from the Euro to Yen exchange rate. This was also apparent in the American market because the Euro has strengthened against the Dollar more than the Yen. In Germany and Europe, GILDEMEISTER has defended its competitive position despite sustained market weakness. In America, our order intake did not quite reach the level of the previous year. With the expected improvement in the economic situation, we see potential here for 2004. Orders from Asia developed pleasingly. In China in particular, but also in Japan and Korea we were able to increase our order intake considerably.

The weaker demand for machine tools in 2003 also affected the sales development for GILDEMEISTER. At Euro 977.8 million, sales were 5% below the previous year. The desired target was not quite reached. Domestic sales were 3% down at Euro 475.5 million. The international business reached Euro 502.1 million, which corresponds to a proportion of 51%.

GILDEMEISTER business activities can be divided into the segments of machine tools with 72% of the sales and Services with around 28% of sales, and Corporate Services with less than 1%. The machine tools business achieved sales of Euro 704.2 million (-8%). The DECKEL MAHO milling technology was represented with 46%. The turning technology from GILDEMEISTER and GRAZIANO was 25%. The ultrasonic and laser technology only participated with 1%. The performance of the Services segment (28%) remained pleasing; sales increased to Euro 273.0 million. Apart from the service and spares business, the business with innovative service and software products also has positive rates of growth.

As at year’s end, orders on hand were Euro 332.8 million. This represents about three months’ production.

The income situation of the GILDEMEISTER group has improved considerably. The EBITDA reached Euro 71.1 million (previous year Euro 54.9 million), the EBIT was Euro 34.7 million (previous year Euro 17.2 million) and the EBT was Euro 10.3 million (previous year Euro -7.5 million). This means we were able to realise a swing in the results (EBIT and EBT) of around Euro 18 million. Despite the smaller sales volume, GILDEMEISTER was able to strengthen its earning power again. Through consistent costs and process management, we have improved the margins both in “machine tools” and in “services”. We have expanded the services business in particular. We were not able to increase the sales volume here but we have achieved higher margins.

After taxes, GILDEMEISTER still has a group annual loss of Euro 3.6 million (previous year: Euro -18.7 million), which is mainly due to charges for back tax and non-deductible goodwill depreciations and non-offsettable effects from foreign subsidiaries.The results of GILDEMEISTER Aktiengesellschaft are determined by the payouts from affiliated companies. In the 2003 business year, the annual profit was Euro 4.7 million (previous year Euro 4.4 million). In view of the annual loss in the group, the Executive Board and the Supervisory Board recommend to today’s 102^nd General Meeting to retain the balance sheet profits of Euro 9.1 million according to agenda item 2 to strengthen the equity capital.

And now some notes about the 2003 annual report of the GILDEMEISTER group:

* The annual loss and the change to the retained profit led to a reduction in equity capital of 3.2% to Euro 187.6 million (2002: Euro 193.8 million). The equity ratio decreased by 0.2 percent to 21.4 % (previous year: 21.6%).

* Compared to the previous year, the balance sheet total decreased by 2.6% to Euro 874.9 million. Within the assets, fixed assets decreased by Euro 5.7 million to Euro 270.6 million. Stocks increased by Euro 13.6 million to Euro 264.4 million. Cash flow from current business was positive at Euro 28.7 million. Compared to the previous year, this results in Euro 19.0 million less income.

* Investment: After the payments of the previous years, the capitalised additions decreased by 50% to Euro 36.4 million. Investments in material assets and intangible assets were Euro 27.2 million. Among the intangible assets, additional additions were caused by the capitalisation of development costs according to IFRS (Euro 8.1 million) and leased assets (Euro 1.1 million). The investments were offset by depreciations of Euro 36.4 million.The focus of our investment activities was the technology and assembly centre of SAUER GmbH in Idar-Oberstein for the growing Ultrasonic division. The processing of “Advanced Materials” with ultrasonic and laser technology in the optical, medical, automobile and aerospace industries is a growth market. As another milestone in our global strategy, we have opened the modern technology centre of DMG Nippon in Yokohama, Japan.

* GILDEMEISTER is orienting its business processes to the market requirements and customer needs. Our products reflect this with their innovative technology. In the business year 2003 we redeveloped 10 products and presented them at international trade fairs and exhibitions. 86% of the current delivery programme is younger than three years. The R&D costs in the reporting period were Euro 43.1 million. We have kept the number of our developers at a high level with 397 employees; this corresponds to 13% of the staff of our production works. Continuity secures our innovation know-how. The focus of our research and development work has been in technology integration, ultrasonic and laser processing, in increasing machine dynamism, tool management and software products. GILDEMEISTER is securing its technological advantage in the future through innovative, use-oriented developments.

* On 31 December 2003, the group had 5,028 employees, of these, 205 were apprentices (previous year: 5,045). By strengthening the service area further and internationalising our production, the staff capacities altered. The international sales and service companies in Asia, America and Europe and the production plant in Shanghai were strengthened in certain points. As at the year’s end, 3,119 employees (62%) worked in domestic companies and 1,909 (38%) worked for our overseas companies. Staff costs in the group were Euro 270.0 million (previous year: Euro 270.2 million).

At this juncture, the Board would like to thank all the employees for their hard work. The success of our company is based on their knowledge and their ideas. Once again, with commitment, they have faced the challenges set by the competition and the markets and mastered them. We also thank the works councils with which we work together in a spirit of co-operation.

In 2003 GILDEMEISTER shares performed positively. From a year’s low of Euro 2.91 (12 March 2003), there has been a continual upward trend. Whereas the quarterly average in the first quarter was Euro 3.74, after six months the price was Euro 4.11 and after nine months on 01 October it was Euro 5.78. The year’s high was reached on 29 December at Euro 8.25. The closing price for the year was Euro 8.22 (30/12/2003). Overall, the price of our shares increased over the year by 117.5%. As a result, our shares are among the top stocks in the SDAX. The change in index membership within the framework of the re-segmentation of 21 March 2003 did not impact on the price of the GILDEMEISTER shares, as was expected. On 20 March 2004, the shares reached their highest price of Euro 8.94. After the press conference on 29 March 2004, the shares slipped to Euro 7.60. At the end of the quarter (31/03/2004), the share price was Euro 7.73. On the same day in 2003, the price was Euro 3.35. The current share price, after the subscription rights capital increase was announced yesterday, was Euro 6.36 (13/05/2004).

Dear Shareholders,

Before I discuss the financial year 2004, I would first of all like to report about a very recent event. GILDEMEISTER wants to and must secure and re-arrange its financial structure over the long-term. As you, dear shareholders, will know from recent publications, with the consent of the Supervisory Board on 11 May 2004, we have decided to strengthen our capital base by means of a 2:1 subscription rights capital increase. Moreover, a long-term corporate bond is being examined to optimise the financial structure further.

HVB Corporates & Markets and West LB are mandated as Joint Lead Managers for the capital increase and the rights offering. The Banks have agreed subject to customary conditions to underwrite the appr. 14.4 million new shares at a minimum subscription price of Euro 4.15 per share with the obigation to offer them to the shareholders of GILDEMEISTER Aktiengesellschaft for subscription. As part of the capital increase, the company will raise appr. Euro 60 million. You, dear shareholders, will receive a subscription right to the new shares, which will be entitled to full dividend for the current financial year 2004. The final purchase price is expected to be announced on 28 May 2004. The purchase period is expected to begin on 02 June 2004 and end on 15 June 2004. The trade in subscription rights is expected to take place from 02 June 2004 to 11 June 2004. The new shares are expected to be included in the share price on the stock exchange from 16 June 2004.

The proceeds from the planned capital increase will be used to strengthen GILDE-MEISTER’s capital base, to reduce short and medium-term liabilities, to ensure strategic options and to further finance the expansion in Asia. Dear shareholders, we ask that you accompany GILDEMEISTER positively in this important step to strengthen the capital structure and make use of your subscription rights within the framework of this capital increase. You will receive notification about this from your custodial bank at the start of the purchase period, expected to be from 02 June 2004.

Additionally, GILDEMEISTER is evaluating opportunities for a bond issue to further optimise the structure of ist third party liabilities. The bookrunners on the bond will be HVB Corporates & Markets and WestLB. The Board has entered into an evaluation process and would like to create all requirements in order to use a favourable time for a long-term corporate bond. However, we will only approach external money markets if the interest rate and other conditions appear attractive and a corresponding issue window arises. The subscription rights capital increase will put us in a position to be able to make a decision in our own time.

Under Agenda Item 7, we ask you to authorise the issue of option and convertible bonds. With this authorisation, which is limited until 31 March 2009, the Board will be given a dispositive right corresponding to current customs in order to be able to use favourable capital market windows in the interests of the company and thus in the interests of the shareholders. This authorisation will serve solely as a reserved decision; there are no plans to use it at present.

Because of the agreed subscription rights capital increase, the Executive Board and Supervisory Board do not wish to put the planned share buyback under Agenda Item 6 to the vote. When agreeing the agenda, the Executive Board and Supervisory Board were still in the examination phase. Now that it has been decided to issue new shares, such a buyback is inopportune, at least until the next General Meeting.

Dear Shareholders,

I would now like to discuss the financial year 2004 and inform you of the current market developments. Improved general conditions will accelerate the growth of the world economy. The current forecasts for engineering, and specifically for machine tools, assume growth again; recovery trends will start this year. We expect world consumption and production to be about 4% above last year’s level. The Machine Tools Association (VDW) expects a considerable increase in orders and production for German manufacturers.

For 2004, GILDEMEISTER expects a continually increasing improvement in demand. Our planning is based on new innovative products, the further expansion of our worldwide market presence, stable consumption in Asia, noticeable improvements in America and the first signs of recovery in Europe and in the domestic market. We again want to prove our innovative strength in the current business year with 20 new developments. We expect purchase impetus from spring trade fairs, notably METAV in June. GILDEMEISTER will be presenting 22 products, including 6 world exclusives. Dear Shareholders, convince yourselves of the performance of your company and visit us from 15 – 19 June in Düsseldorf.

To the figures for the first quarter of 2004: Our order intake reached Euro 241.0 million in the first quarter and thus was considerably above the quarterly value last year (+5%). This situation is due to the good order situation in March. After having already increased new orders in February by 17% compared to January, March exceeded our planning to become the best month since the EMO in September 2001. The positive development continued into April. In the first four months, new orders were Euro 340.1 million (same period previous year: Euro 316.5 million). We expect increasing new orders for the coming months; due to large orders and purchase impetus resulting from the spring’s trade fairs. With a general increase over the rest of the year, we now want to achieve more than 5% more new orders in the reporting year.

Sales for the first quarter reached Euro 222.7 million in line with the planning and thus are at the same level as last year (Euro 226.0 million). For the coming quarters, we are planning sales to develop above the quarterly figures for the previous year. Based on the current orders on hand and the expected order intake in the current year, we are planning to increase sales by 3 – 5%.

As at 31 March 2004, the orders on hand in the group were Euro 277.7 million. For a balance, which has been previously derived as an accounting figure, as at 31/03/2004, a methodical conversion has been undertaken. We have reworked and refined our guidelines within the framework of our stringent risk management system covering the entire group. Under comparable criteria, there has been growth of Euro 19.3 million (7%) compared to the same quarter last year. In terms of scope, our orders on hand still correspond roughly to three months’ production.

The results developed in the first quarter as announced. The EBITDA was Euro 11.6 million (previous year: Euro 11.0 million). EBIT was positive at Euro 2.7 million (previous year: Euro 2.6 million); but the EBT is still negative at Euro -3.5 million (previous year: Euro -3.8 million). The quality of our results has improved slightly compared to last year. After taxes, GILDEMEISTER has an annual loss of Euro 3.9 million (previous year: Euro -4.3 million) in the group. Based on consistently continued measures to strengthen the earning power and to increase efficiency in sales and to make savings, above all in the areas of material asset and material investments, for 2004 we are planning a considerably improved EBT and thus a positive annual result. Our aim is to return to dividend payments with a better result.

Dear Shareholders,

The business year 2004 will also remain challenge; however, we are ready and will return to the path of growth of previous years. My colleagues and I can assure you that GILDEMEISTER is well positioned. Our strategy is clearly defined and takes into account the needs of our target groups. As a result of good conditions in a modern, international labour market, we encourage the commitment of our employees. With a high standard of quality and a high degree of investment at the same time, we want to tie-in our customers and gain new ones. Through close and performance-based co-operation with our suppliers, we will continue to realise potential for optimisation. We will be a reliable partner for those who provide external capital. But above all, GILDEMEISTER should remain a profitable and in future more profitable investment for you, our shareholders. The Executive Board, the management and all the employees of your GILDEMEISTER Aktiengesellschaft thank you for the trust you place in us. So in the future give us, the company, your trust, your loyalty and your support. Thank you for your attention!

Dr. Rüdiger Kapitza
Chairman of the Executive Board

14 May 2004