Speech at the balance sheet press conference of GILDEMEISTER Aktiengesellschaft on March 12, 2009

Check against delivery

Ladies and gentlemen,

Before the Executive Board reports on the financial year 2008 of GILDEMEISTER Aktiengesellschaft and on the current financial year, we would first of all like to present the development of the machine tool industry in the past year. 

Industry development 2008

International development

Worldwide demand for machine tools still rose slightly overall in the financial year 2008. In the fourth quarter of 2008, the industry recorded a strong negative trend, triggered by the international financial crisis. Consumption for the whole year still reached Euro 54.5 billion; an increase of 6% (previous year: Euro 51.8 billion). China was once again the biggest sales market at Euro 12.2 billion (22%). Germany took second place with Euro 6.8 billion (13%). Third place was taken by Japan with Euro 5.5 billion (10%) followed by the USA with Euro 4.6 billion (8%) and Italy with Euro 4.0 billion (7%). These five industrial nations account for 60% of the worldwide consumption of machine tools.

According to calculations of the Association of German Machine Tool Builders (VDW), global production amounted to Euro 54.5 billion. Therefore production in 2008 rose again by 5%. Japan defended its worldwide leading position with Euro 10.8 billion (20%); virtually at the same level, Germany followed closely behind in second place with Euro 10.7 billion (20%). China occupied third place with Euro 8.5 billion (16%). Italy was in fourth place with Euro 5.6 billion (10%). Taiwan achieved fifth place with Euro 3.4 billion (6%). These five countries represent 72% of global machine tool production.

German machine tool industry

Order intake of the German machine tool industry remained at Euro 14.2 billion or 11% below the previous year’s level (Euro 16.0 billion). Domestic demand fell by 14% (previous year: +33%). International demand decreased by 9% (previous year: +26%). For the first time in five years, orders were thus once again down (-10%). 

Production rose by 13% to Euro 14.3 billion and again surpassed the record level of the previous year (Euro 12.6 billion). Of the machine tools produced in Germany, 57% were exported. 

The order backlog capacity in 2008 amounted to 8.7 production months on average. 

Reliable information on the profitability of the German machine tool industry is not readily available as only a few companies publish the corresponding figures. Therefore the VDW has to rely on estimates. However, it can be determined that profitability within the industry is still satisfactory despite the worldwide financial crisis. 

Financial year 2008 of the GILDEMEISTER Group

The financial year 2008 was the best year for GILDEMEISTER in its 138-year history! We have achieved our targets in all key performance indicators. We were able to further extend our position as a leading manufacturer of cutting machine tools. 

Sales revenues

Sales revenues of Euro 1,904.0 million once again surpassed the record level of the previous year (Euro 1,562.1 million). This corresponds to an increase of 22% or 

Euro 341.9 million. In the reporting year, the Machine Tools segment achieved an increase of Euro 109.6 million (+10%); the Services segment contributed Euro 232.4 million (+49%) to the increase in sales revenues; the solar technology division contributed Euro 199.5 of this. Domestic sales revenues rose by 14% to Euro 829.9 million; foreign sales revenues rose by 29% to Euro 1,074.1 million. The export share amounted to 56% (previous year: 53%). 

Segment reporting

Our business activities include the Machine Tools segment with a sales revenue contribution of 63% (previous year: 69%) and the Service business with about 37% (previous year: 31%) and Corporate Services with less than 1%.

The Machine Tools segment includes the new machines business. Sales revenues rose by Euro 109.6 million or 10% to Euro 1,192.3 million (previous year: 

Euro 1,082.7 million). The milling technology of DECKEL MAHO contributed 41% (previous year: 44%), ultrasonic und lasering contributed 2% (previous year: 2%). The turning technology of GILDEMEISTER amounted to 20% (previous year: 23%). The positive trend in the Services segment once again made a clear contribution to the good business development. Sales revenues rose by 49% or (Euro 232.4 million) to Euro 711.5 million (previous year: Euro 479.1 million). In particular, the solar technology division – which belongs to the Services segment – contributed to this with Euro 199.5 million. The original service business recorded an increase of Euro 32.9 million or 7% compared to the previous year.

Order intake

GILDEMEISTER achieved order intake of Euro 1,882.0 million and was therefore some Euro 17.2 million or 1% above the previous year’s level (Euro 1,864.8 million). In the first three quarters of the year, order intake developed satisfactorily, despite the increasingly difficult market environment caused by the financial crisis. In the fourth quarter, we, too, had to accept losses, due to the incipient international economic crisis: Order intake amounted to Euro 289.2 million (previous year’s quarter: 

Euro 461.1 million). For the whole year the machine tools business amounted to 

Euro 1,160.8 million (previous year: Euro 1,292.3 million). Services rose to Euro 721.0 million (previous year: Euro 572.2 million); the solar technology division contributed to this with a doubling of the previous year’s amount to Euro 162.1 million (previous year: Euro 81.5 million). Domestic order intake grew by 6% to Euro 843.4 million (previous year: 

Euro 793.6 million). International order intake amounted to Euro 1,038.6 million (previous year: Euro 1,071.2 million). The export share amounted to 55% (previous year: 57%). 

In Germany we have increased our order intake. In Europe business remained almost constant. In America order intake developed positively for us. In Asia orders decreased.

Order backlog 

As at 31 December 2008, the order backlog amounted to Euro 727.4 million; it was therefore slightly (3%) below the previous year‘s level (Euro 749.4 million). This represents production capacity utilisation of about five months.

Profitability 2008

Profitability continued to develop positively as planned: The group annual profit grew by 62% to Euro 81.1 million (previous year: Euro 50.1 million). EBITDA reached 

Euro 188.9 million (previous year: Euro 158.2 million); EBIT amounted to Euro 158.2 million (previous year: Euro 125.9 million). EBT rose by 52% to Euro 126.7 million (previous year: Euro 83.4 million). Earnings per share rose by 61% to Euro 1.87 (previous year: 

Euro 1.16). The Executive Board and the Supervisory Board will propose to the Annual General Meeting of Shareholders on 15 May 2009 that a higher dividend of Euro 0.40 per share be distributed for the financial year 2008 (previous year: Euro 0.35). 

GILDEMEISTER Share

The GILDEMEISTER share showed a volatile performance in 2008: The share started the stock market year at a share price of Euro 18.61 (2 Jan. 2008) and reached its highest share price of the year at Euro 23.38 on 22 May 2008. Market capitalisation fell in the best financial year in the company’s 138-year history by 58% or Euro 461.2 million to Euro 339.9 million (previous year: Euro 801.1 million). The international financial crisis and the incipient economic crisis influenced the capital markets in the last six months of the year and therefore also the performance of the GILDEMEISTER share. The lowest annual share price was Euro 4.79 (21 Nov. 2008). The share closed on 30 December 2008 at 

Euro 7.85. Currently the share price is quoted at Euro 4.60 (11 March 2009).

The GILDEMEISTER Aktiengesellschaft subordinated bond (Euro 175 million) was prematurely redeemed at the earliest possible date of 19 July 2008 as planned and has been replaced by market usual borrowers’ notes (Euro 200 million). 

The following provides some explanatory notes on the GILDEMEISTER Group Consolidated Financial Statements for 2008

Net worth and financial position

Balance sheet total amounted to Euro 1,390.4 million (previous year: Euro 1,150.1 million). Against the background of the persisting financial crisis and the governmental rescue measures we have invested the liquid funds defensively and thus accepted a balance sheet extension. The increase arises from the higher funds tied up in inventories (Euro +64.8 million) as well as from an increase in liquid funds (Euro +162.4 million) from the nearly drawing completely on the syndicated credit line in the fourth quarter of 2008. Trade receivables decreased by Euro 6.5 million to Euro 286.0 million while sales increased. This is due to consistent improvements in our claims management.

The group’s financial position once again developed positively in the reporting year. Free cash flow amounted to Euro 60.1 million (previous year: Euro 84.8 million). We have therefore achieved our forecast (Euro 50 million). We have primarily used the free cash flow to reduce net financial debt by Euro 44.6 million to Euro 120.4 million (previous year: Euro 165.0 million) as well as for the distribution of the dividend.

Equity 

The net income for the year led to an increase in equity of 15.2% to Euro 379.7 million (previous year: Euro 329.5 million). The equity ratio fell due to the balance sheet extension to 27.3% (previous year: 28.7%). Without an increase in liquid funds, the equity ratio would have improved to 29.8%.

Investments

Investments in the reporting year amounted to Euro 50.2 million (previous year: 

Euro 53.1 million). Of these, fixed assets accounted for Euro 41.9 million (previous year: Euro 37.9 million) and intangible assets for Euro 1.4 million (previous year: Euro 2.3 million). Capitalised development costs accounted for Euro 6.9 million (previous year: Euro 7.4 million). Depreciation amounted to Euro 30.7 million (previous year: Euro 32.3 million).

Research and Development

Through its high innovative strength, GILDEMEISTER was able to implement all the 17 new developments planned for the reporting year and present them at a total of 70 trade fairs and exhibitions. A particular highlight of the traditional inhouse exhibition in Pfronten was the opening of the “Center of Excellence Aerospace”, where we present innovative production solutions for the aerospace industry. The “New Design“ was transferred to further machine types in the reporting year. Numerous awards – amongst them the “Industry Prize 2008“ and the “Universal Design Award 2008“ – attest the success of the new colour and shape design. Our customers are impressed by the advantages and consider the new design to be a purchase criterion when selecting a machine. Moreover, in the area of entry level machines, we have further successfully extended our ECOLINE series. These machines are aimed primarily at the markets in Asia, eastern Europe and South America, and offer proven technology at favourable terms. Expenses amounted to Euro 57.3 million; this is 16% more than in the previous year (Euro 49.5 million). There are 471 employees working on the development of our products and services (13% of the workforce at the plants; previous year: 467 employees). 

Employees

As at 31 December 2008, GILDEMEISTER had 6,451 employees (previous year: 5,998) of whom 260 were trainees. Over the course of the financial year, the number of employees rose by 453. In the Services segment, additional employees were hired at DMG Spare Parts and a+f, as well as in Asia and Europe – in particular, eastern Europe. This allows us to meet the increased requirements of our customers even better. In the Machine Tools segment, due to the higher sales performance, additional employees were hired especially at the production sites in Shanghai, Bielefeld and Pleszew.

At year-end, 3,841 employees (60%) worked at our domestic companies and 2,610 employees (40%) at our foreign companies. The number of employees in the service area increased by 235 to 2,542 (previous year: 2,307). Therefore the percentage of those employed in this segment was 39% (previous year: 39%). Personnel expenses amounted to Euro 405.5 million (previous year: Euro 366.4 million); the personnel quota decreased to 20.7% (previous year: 22,9%).

Forecast for the financial year 2009

Current forecasts for the machine tool market expect a marked decline. The Association of German Machine Tool Builders (VDW) expects consumption and production in 2009 worldwide and in Germany to fall by 15% – and, according to the association’s information, this is considered to be optimistic.

The consolidation process in the machine tool industry will continue in 2009. As a result of this development, globally operating manufacturers will be increasingly present on the world’s markets.

At the start of 2009, GILDEMEISTER was not able to avoid the slowdown in the economic environment and the decline in demand for machine tools. With respect to order intake, we had a restrained start to the new financial year. The development of order intake will continue to be affected by the ongoing uncertainty of our consumers and the strong decline in demand as a result of this. For the first quarter of 2009 we are expecting order intake to be clearly below the high level of the previous year’s quarter (Euro 591.9 million). The machine tool business will decline in 2009, the service business will remain stable and for the solar business we are expecting positive development under the precondition of secured project financing. At a Grand Opening on 23 January 2009, a+f GmbH presented its trendsetting Solar Center of Excellence, and is thus meeting the demands of dynamic development at the Wurzburg site. The modern building, which offers workspace for up to 100 employees, is a reflection of the ecological direction of the company. As a so-called “zero energy building“, it has no need of primary energy. On the occasion of the grand opening, the “SkyCarrier” – an innovative solar tracking system for countries in the equatorial region – was presented for the first time. With the “SkyCarrier“, GILDEMEISTER is planning to expand its activities in the fast-growing business area of renewable energy. 

Due to the good order backlog sales revenues in the first quarter of 2009 will be below the previous year’s level (Euro 392.0 million) because of the difficult market situation. As a consequence of the international economic crisis, GILDEMEISTER will also feel more strongly the reluctance to purchase on the part of consumers, both domestically and internationally, over the course of the year. We expect the worldwide economic crisis to have an even more marked effect on sales revenue development over the course of the year. It is not possible at the current time to give more detailed statements on the current financial year.

In the first quarter we are planning a positive EBT (previous year: Euro 18.1 million). It is not possible to give more detailed information for the current financial year as the extent and duration of the economic crisis cannot yet be foreseen. 

We expect to receive a boost from the worldwide trade fairs for the industry. At the most important machine tool trade fair in Asia, the CIMT in Beijing from 6 to 11 April, GILDEMEISTER will display 25 exhibits. The EMO takes place in Milan from 5 to 10 October, where GILDEMEISTER will present 40 exhibits, nine of which are world premieres.

On 24 March 2009, we are opening the “DMG Experience Center Turn & Mill” at the Bielefeld site. In the future, together with partners, we will carry out programming and live demonstrations for our customers for their specific workpieces free-of-charge. Within the scope of application support and advice, this will allow our specialists to solve customer requirements promptly. 

For the financial year 2009, we have prepared our company for the expected development and are continuously focusing on the requirements that result out of the economic crisis. With our innovative products and global presence, we are well-prepared for the coming change in the machine tool business. GILDEMEISTER has a good financial base, a sound foundation and a clear corporate strategy. A large degree of flexibility allows GILDEMEISTER to respond appropriately to the changing market environment. GILDEMEISTER remains well-positioned in the major markets and, with the measures that are being consistently introduced, we are convinced that we will emerge stronger from the crisis.

Bielefeld, 12 March 2009
Dr. Rüdiger Kapitza
Chairman of the Executive Board