• Speech to be delivered at the 101st Annual General Meeting of Shareholders of the GILDEMEISTER Aktiengesellschaft
Press Release Annual General Meeting

Speech to be delivered at the 101st Annual General Meeting of Shareholders of the GILDEMEISTER Aktiengesellschaft

The spoken word prevails!

Speech to be delivered at the 101st Annual General Meeting of Shareholders of the GILDEMEISTER Aktiengesellschaft on 16 May, 2003

Ladies and gentlemen, shareholders,

on behalf of the Executive Board I would like to welcome you to our 101st general meeting of shareholders here in Bielefeld.

In the financial year 2002 GILDEMEISTER was able to maintain its current position even under extremely difficult market conditions. The previous year did not see any rise in economic activity, which, from one quarter to the next, put our initial optimism into perspective. Many factors contributed to this as we saw one of the worst years on the stock exchange for a long time. During the course of this trend, the GILDEMEISTER share, like others, was substantially underpriced. In 2002, GILDEMEISTER succeeded in reaching its planned sales target of Euro 1,032.8 million, despite the difficult situation in the world market. At Euro 981.0 million, the intake of new orders was 11% below the record level for the previous year. Profitability remained below expectations. EBIT reached just Euro 17.2 million; the results from ordinary activities showed a loss of Euro 7.5 Euro million. Taking into account taxes on income, the group's net loss for the year amounted to Euro 18.7 Euro million. Due to the distribution of dividends in the affiliated companies, GILDEMEISTER Aktiengesellschaft closed the financial year with an annual net profit of Euro 4.4 million.

Before going into the course of business 2002 in more detail, I would like to report on the international development of the machine tool industry. Word-wide demand continued to decline during the previous year. Consumption amounted to Euro 32.8 billion. China became the world's largest market for machine tools for the first time. Here consumption amounted to Euro 6.0 billion, representing 18% of global consumption. Germany, with Euro 16 billion (16%), came second; Third place was occupied by the USA with Euro 3.5 billion (11%), followed by Italy and South Korea.

Global output declined by 16% to Euro 32.8 billion, reaching again the level of 1999. For the first time since 1981, Germany, with Euro 7.2 billion was the largest producer, followed by Japan and Italy. The five major producer countries represent 68% of the global machine tool production.

The intake of new orders for the German machine tool manufacturers dropped by 8% to Euro 8.6 billion; whilst domestic orders showed a decline of 13%, international orders a decline of 2%. For the first time in a long while, production did not see any growth; but dropped to Euro 8.8 billion (-13%).

In the financial year 2002 GILDEMEISTER was able to maintain its current position even under the most difficult market conditions! Our turning and milling machines and laser and ultrasonic technology convinced customers around the world thanks to user-orientated, trend-setting innovations.

As of 31 December 2002 the GILDEMEISTER group was composed of GILDEMEISTER Aktiengesellschaft as parent company and the affiliated companies with their subsidiaries. The group includes 11 production plants and 48 sales and services locations. The risk reporting includes all group companies controlled by GILDEMEISTER Aktiengesellschaft.

During the past financial year, the intake of new orders reached Euro 981.0 million and was therefore 11% below the record level for the previous year. At Euro 455.6 million, domestic orders declined. Export orders, at Euro 525.4 million, maintained an almost consistent level. DMG Vertriebs und Service GmbH maintained its position despite heavy competition. At home, major losses were suffered for the first time. In Europe,

GILDEMEISTER reinforced its position despite the continuing weakness of the market. In America we were able to increase our market shares slightly, however, the intake of new orders did not reach the level of the previous year. The increase in export shares is primarily due to orders from Asia. In the markets of Taiwan, Korea, Malaysia and particularly of the PR of China, we were able to accomplish a considerable increase in our intake of new orders. A total of 5,150 turning, milling, laser/ultrasonic and used machines were sold to 3,465 different customers both in Germany and abroad. In accordance with item 7 on the agenda of today's general meeting of shareholders, we would like to ask you to approve the profit and loss transfer and control agreement with DMG Vertriebs und Service GmbH for reasons of tax optimisation.

The world-wide weak demand for machine tools has also affected sales development at GILDEMEISTER. At Euro 1,032.8 million sales were 10% below the record level of the previous year. Compared with the rest of the industry, which suffered a 13% deficit in the cutting machine tools area, GILDEMEISTER was, in all, able to maintain its position relatively well. Domestic sales, totalling Euro 491.7 Euro million, dropped by 13%; international sales reached Euro 541.1 million. The export share increased further to 52% (previous year: 50%).

The GILDEMEISTER business activities are divided into the Machine Tools segment with a sales contribution of 74% (previous year: 77%), the Services segment with approximately 26% (previous year: 23%) and the Corporate Services segment with less than 1%. The Machine Tools segment includes the new machines business; sales reached Euro 768.6 million (-12%). The DECKEL MAHO milling machines and machining centres contributed 50%, whilst the laser/ultrasonic technology contributed 1% of sales. 23% of sales were attributed to the turning machines and turning centres. Business development in the Services segment increased to 26% or Euro 263.6 million.

By the end of the year, orders on hand amounted to Euro 328.8 million. For computing purposes, this represents a production capacity utilisation of approximately three months.

The GILDEMEISTER group's profitability remained below expectations in the financial year 2002. Earnings before interest, taxes, depreciation and amortisation (EBITDA) were Euro 54.9 million (previous year: Euro 113.1 million), earnings before interest and taxes (EBIT) amounted to Euro 17.2 million (previous year: Euro 78.1 million) and results from ordinary activities (EGG) showed a loss of around Euro 7.5 million (previous year: Euro 54.7 million profit). This reduction in earnings is due to various factors. Apart from the reduced sales volume, higher start-up costs for the 22 developments have resulted in an increase in staff and materials costs. However, these innovations safe-guard our strong technological position and are an investment in the future. In addition, business development was also dominated by the continued increasing pressure on selling prices during the course of the year.

Despite the loss on ordinary activities, there was considerable tax expenditure for the reporting year, since the tax burden of the profitable companies was only reduced to a limited extent by the losses incurred at some companies. The net loss for the year amounted to Euro 18.7 million (previous year: annual net profit of Euro 25.8 million).

The distribution of dividends of the affiliated companies determine the result of GILDEMEISTER Aktiengesellschaft. In the financial year 2002, the annual net profit amounted to Euro 4.4 million (previous year: Euro 59.1 million). Due to the group's annual net loss, the Executive Board and Supervisory Board will propose to today's 101st general meeting of shareholders, in accordance with item 2 on the agenda, not to distribute a dividend, but to carry forward the net profit for the year of Euro 4.4 million to new account.

Here some explanatory notes on the Annual Financial Statements 2002 of the GILDEMEISTER group are in order:

* The net loss for the year and the distribution of a dividend for the previous year resulted in a Euro 37.4 million reduction in equity to Euro 193.8 million (2001: Euro 231.2 million). The equity ratio amounts to 21.6% (previous year: 26.3%).

* Compared with the previous year, the balance sheet total rose by 2.4% to Euro 898.4 million. On the assets side, fixed assets increased by 11.6% or Euro 28.7 million to Euro 276.3 million. At Euro 250.8 million, stock on hand remained at an almost constant level. At Euro 47.7 million, the cash flow from running operations was positive and increased by 52% when compared with the previous year.

* Investment spending was in line with corporate development. We reduced our investments by 46% to Euro 29.9 million. Fixed asset additions worth Euro 26.4 million in the intangible asset area are due to the capitalisation of the development costs in accordance with IFRS (International Financial Reporting Standards). We increased our participating interests in GILDEMEISTER Italiana S.p.A. to 100% and in a & f Stahl- und Maschinenbau GmbH to 90%. The investments stood vis-à-vis depreciation of Euro 26.1 million.

A milestone with respect to the implementation of our globalisation strategy was the production plant in Shanghai. The new site covers a total area of 15,000 m² and includes a usable area of 10,000 m² that will be available for the installation of machine tools and will also be used as a technology centre. Our first production plant outside Europe will be used for the production of innovative turning machines and machining centres for the Chinese market. The Grand Opening took place on 15 January, 2003.

* GILDEMEISTER consistently gears all business processes to market requirements. This is particularly evident in our innovative products. In the financial year 2002 we developed 22 new machines, which were presented to the public around the world. Over 90% of the current delivery programme therefore consists of machines that were developed during the last three years. In the reporting period spending on research and development amounted to Euro 47.5 million. In our production plants 397 employees (12.7% of staff) are working on the development of new products. Apart from the integration of the technologies, our research and development policy focuses on the further development of the ultrasonic and laser technologies, the increase in machine dynamics and in the software development of the trend-setting electronic service products. Thanks to its innovative production programme, GILDEMEISTER is well prepared to cope with current market conditions.

* On 31 December, 2002, the group had 5,045 employees (previous year: 5,234), 224 of whom were trainees. During the reporting year the number of employees in the group reduced by 209 skilled staff, whilst the number of trainees increased by 20. The staff adjustment measures are directly related to business development in the individual group companies. Staff costs within the group amounted to Euro 270.2 million (previous year: Euro 274.2 million).

At this point the Executive Board would like to thank all employees for their continued commitment. Our employees' committed work - every day in all areas throughout the group and, lately, throughout the entire world - is one of the main contributors to our company's performance in the face of the difficult general economic setting. Their motivation is exemplary. We would like to extend our thanks to the employees councils thanks to whom we were able to respond to market conditions in a co-operative manner, and who were instrumental in the rapid and target-orientated implementation of decisions.

During the first few months of the year 2002, the price performance of the GILDEMEISTER share went well, reaching its high of Euro 12.05 on 20 March, 2002. By the middle of July, the GILDEMEISTER share oscillated at about a Euro 9 level. The second half of the year was dominated by a negative trend in the capital markets. Our share, too, suffered losses and, by the end of October, sank to a level of around Euro 5. The price performance in the third and fourth quarter was not only due to the overall weak development of the market, but also to the announced passing of a dividend as a result of declining profits. By the end of the year (30.12.2002), the GILDEMEISTER share traded at a price of Euro 3.78. Throughout the year, our security lost 59.4% in total.

In the first quarter of 2003, the GILDEMEISTER share passed its low. Until the middle of February, our security was traded at a Euro 4 level, and then began to weaken in the sluggish market due to the Iraq conflict. On 13 March, its lowest value was quoted at Euro 2.91. Since 21 March, 2003, the GILDEMEISTER share has been listed on the SDAX due to the new segmentation of the stock indices. According to analysts, the entry in the index will probably play a secondary role in the price performance of the share. Following the press conference on financial statements that was held on 31 March, the GILDEMEISTER share moved to a price of Euro 3.60. During the following days, this price rose continually. Not even the current price of Euro 4.31 (14.05.2003), though, reflects the value of the company. According to experts, an overall turn-round in the stockmarket is not expected before there are clear signs of economic recovery.

Dear shareholders, we would like to ask you to approve item 8 on the agenda of today's general meeting - adoption of a resolution on authorisation for the acquisition of own shares. This is to enable GILDEMEISTER Aktiengesellschaft to use its own shares to pay for the acquisition of companies or participating interests in companies. This authorisation is a provisional resolution; in practice there are currently no plans for its implementation.

Corporate Governance enjoys a high standing at GILDEMEISTER. Corporate Governance represents the responsible management and supervision of companies geared towards the creation of long-term value. Main elements include the efficient co-operation between the Executive Board and Supervisory Board, respect for the interests of the shareholders and openness and transparency in the company's communication system. The standards and rules of Corporate Governance are included in our Code of Practice. If the special remuneration for the chair and members of the newly appointed Finance and Auditing Committee was introduced, GILDEMEISTER would comply with all recommendations and suggestions included in the German Code of Corporate Governance. We would therefore like to ask you, the shareholders, to approve item 6 on the agenda - passing of resolutions on proposals for amendments to the articles of association: electronic announcements of the company and the Supervisory Board fee. Further to item 6 on the agenda, I would like to briefly explain to you the background to this change in regulation with respect to the Supervisory Board fee. The amendments include: firstly, the remuneration of committee work (Clause 4), and secondly, the adoption of the recommendation of the German Code of Corporate Governance to provide a fixed remuneration for Supervisory Board members and an - additional - performance-related remuneration that takes into account the long-term performance of the company (Clause 2 b). Detailed explanatory notes and the report by the Executive Board will be dealt with under items 6, 7 and 8 on the agenda of today's general meeting.

Co-operation plans: In the middle of last year GILDEMEISTER and ThyssenKrupp announced that they would look into the pooling of their activities in the cutting machine tools area. The plan jointly developed between the two companies appeared to be very attractive, particularly in the sales, distribution and service areas especially in America, and with respect to joint production. However, a pooling of the machine tools business could not be implemented. In view of the difficult economic conditions and tight financial markets the required funding could not be arranged. Both parties have agreed to continue discussion in order to develop alternative solutions and, if necessary, to implement the plan in individual stages.

Dear shareholders,

I would now like to deal with the financial year 2003 and begin by informing you about current market trends. The world-wide decline in demand trend for machine tools remained unchanged in the first months of the year. As before, the forces of economic recovery are weak in most industrial countries. In the opinion of economic researchers, it is likely that this picture will begin to brighten from the middle of this year. The world-wide market for machine tools will barely reach the preceding year's level in 2003. According to our assessment, we expect both global output and consumption of machine tools to be around 2-5% below the preceding year's figures. The German machine tool industry in its forecast for sector trends also expects another difficult year ahead. During the first three months, the intake of new orders remained 5% below the level of the previous year. The Association of German Machine Tool Factories expect, at best, the intake of new orders and production to be at the preceding year's level (Euro 8.6 billion and Euro 8.8 billion).

In all, GILDEMEISTER expects a rather restrained course of demand for the current financial year; looking ahead to a moderate revival in the second half of the year - from about September onward. With our innovations and the expansion of our own sales and services organisations, we have invested heavily and are well prepared for any market recovery. We will continue to pursue our innovation-orientated strategy of technological supremacy in cutting machine tools. When implementing this strategy we adapt to economic trends. During the current financial year, GILDEMEISTER will introduce 10 innovations, which will complete the line structure of our production programme.

Here are the figures for the first quarter of 2003: The intake of new orders amounted to Euro 229.0 million in the first quarter (same quarter of the previous year: Euro 235.2 million). The intake of new orders for products by GILDEMEISTER Italiana performed particularly well. We succeeded in more than doubling orders not only for multi-spindlers, but also for automatic lathes. By the end of April, the intake of new orders within the group was at Euro 316.5 million, thereby slightly exceeding the value for the previous year. A particular success was recorded at the CIMT trade fair in Beijing last month. At this, the largest Asian trade fair, GILDEMEISTER achieved an intake of new orders of Euro 12.2 million with respect to 81 machines sold. The lasting impetus from the CIMT reinforces GILDEMEISTER's Asia strategy. For the second quarter of 2003, we expect the intake of new orders to be higher than in the first quarter. Supported by targeted marketing activities and thanks to our innovative machines, we expect a moderate third quarter and, as a result of a gradual recovery in demand, noticeably higher figures for the fourth quarter. With regard to the regional distribution of new orders, there will be a shift in favour of Asia. From today's perspective, we expect our intake of new orders for the financial year to exceed Euro 1 billion.

In the first quarter, group sales reached Euro 226.0 million as planned, and was therefore roughly at the preceding year's level (Euro 231.6 million). Based on the still satisfactory order backlog of approximately three months and the expected intake of new orders in the current financial year, we stick to our forecast that group sales could again exceed Euro 1 billion in the year 2003.

At the end of March, orders on hand within the group reached Euro 331.8 million. This represents a still satisfactory basic capacity utilisation for the next months. Expected fluctuations in demand for individual machine models can therefore largely be counter-balanced. Despite the generally high level of orders, GILDEMEISTER, too, is affected by fewer new orders in some areas, with the result that the smooth processing of some orders cannot always be guaranteed.

As announced, GILDEMEISTER achieved positive EBIT of Euro 2.6 million in the first quarter of the current financial year. A slight loss on ordinary activities of Euro 3.8 million was recorded. The net loss for the year amounted to Euro 4.3 million (31 March, 2002: annual net profit of Euro 1.0 million). Based on our current planning that assumes a revival in demand during the second half of the year, we expect to achieve a profit for the financial year. To safe-guard our performance we have introduced measures in the materials and staff costs area, and cost reductions in product development and marketing. The second quarter will close with positive EBIT and a profit on ordinary activities. We will consider the distribution of a dividend, as soon as the group has obtained an adequate net profit for the year.

Dear shareholders,

The Executive Board, the Management and all employees of your GILDEMEISTER Aktiengesellschaft would like to thank you for the trust you have placed in us. GILDEMEISTER is prepared to weather the storm and continue to strengthen its own position. We all know that our ambitious goals can only be accomplished by intensifying our energies. GILDEMEISTER has both the strength and the virtues required to utilise opportunities. All in all, we are facing the new financial year with a fair level of confidence. We stick to our expectations that we will accomplish our planned business targets for the year 2003 even under continuing difficult market conditions. Thanks to our innovative products and customer-orientated services we will once again confirm our leading position this year with improved economic results. Therefore, please continue to show our company your loyalty and your support. Many thanks for your attention!

Dr. Rüdiger Kapitza
Chair of the Executive Board

16 May, 2003

Disclaimer, Forward-looking statement

Disclaimer, Forward-looking statement

Statements relating to the future:

This press release contains forward-looking statements, which are based on current estimates of the management of future developments. Such statements are based on the management's current expectations and specific assumptions. They are subject to risks, uncertainties and other factors, which could lead to the actual future circumstances, including the assets, liabilities, financial position and profit or loss of GILDEMEISTER, differing materially from or being more negative than those expressly or implicitly assumed or described in these statements. The business activities of GILDEMEISTER are subject to a series of risks and uncertainties, which may result in forward-looking statements, estimates or forecasts becoming inaccurate. Should one of these factors of uncertainty or other unforeseeable event occur, or should the assumptions on which these statements are based prove incorrect, the actual results may differ materially from the results stated, expected, anticipated, intended, planned, aimed at, estimated or projected in these statements. Forward-looking statements must not be understood as a guarantee or assurance of the future developments or events contained therein.