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Company News, 2000-06-28, 02:00 AM

Production Systems: Restructuring making good progress, break-even expected in 2000/2001

The machine building industry suffered from low demand in 1999, particularly in the USA and Europe. Manufacturers of machine tools, above all transfer lines and specialized machines, were particularly affected. Orders picked up again in the second half of 1999, mainly due to the recovery in the world economy. In the current year production is expected to increase again in Western Europe, the USA and Japan.

Production Systems felt the effects of this difficult market environment: Whereas the Body-in-White and Assembly Equipment units enjoyed lively demand with high order backlogs and encouraging earnings, the situation for the Machine Tools business was characterized by overcapacities and price pressure.

In 1997 Production Systems bought Giddings & Lewis, the biggest machine tool manufacturer in the USA (sales Euro 0.6 billion). After initially good results, general demand for machine tools in the USA slumped by up to 50%, resulting in considerable underutilization of capacity at Giddings & Lewis.

In 1998 and 1999 the special machines unit of the Hüller-Hiller group took on large orders under considerable price pressure. These led to significant cost problems, the full extent of which was only recognized in the first two quarters of 2000.

As a result of this unsatisfactory situation, Production Systems made a loss of Euro 47.2 million in the first half of 1999/2000. Against this background the planning for the current fiscal year was revised. Previously initiated restructuring measures were extended into a worldwide reorganization program. This program involved radical consequences for local managements, project management and the alignment of the sites in Germany, the UK and the USA.

The Machine Tools unit is expected to make a full-year loss of approx. Euro 140 million in 1999/2000, reflecting to a great extent non-recurrent costs - in particular for restructurings. The Body-in-White and Assembly Equipment units on the other hand will generate a profit of around Euro 40 million , so that the loss of the Production Systems segment as a whole will be around Euro 100 million. We expect Production Systems to break even overall in fiscal 2000/2001.

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