dr. horst j. kayser ceo, labor director

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Fiscal 2008 was a year of extraordinary market changes for kuka Aktiengesellschaft, as it was for all companies. The worldwide financial crisis caused people to lose much faith in the viability of the markets, and impacted our orders received already in the second half year. In spite of this, my predecessor, former ceo Gerhard Wiedemann, was able to turn over a company to me on October 1, 2008, which, on account of its successful focus on robot-based automation, is well positioned to bridge an economic downturn.

As an industrial engineer with many years of international experience in leading positions at Siemens, I am very familiar with kuka. The kuka brand stands for innovation and top performance in the fields of robotics and plant engineering. I was thus very pleased to heed the call of the company. In the past few months, I have been able to personally confirm that this company with its two core business areas, Robotics and Systems, has an outstanding competitive market position. The strategic focus on general industry growth, founded on a strong position in the automotive industry, is an excellent basis for further development of the company. I am pleased to have this opportunity to apply my management experience and commit all of my energy, together with my Executive Board colleague Dr. Matthias J. Rapp, who is in charge of finances and controlling, to secure the long-term competitiveness of the Group and to steadily improve kuka Aktiengesellschaft’s shareholder value.

The dark clouds that have appeared on the world economy’s horizon should not distract anyone: kuka is strategically on the right track. Although the worldwide economic crisis has resulted in a slump in orders received in the North American and European automotive sector, the like of which have not been seen for almost 20 years, governments have reacted swiftly and decisively to counter this extraordinary situation. Government rescue packages to stabilize the financial markets and the shift in demand will continue to strengthen the trend toward cheaper vehicles that use less fuel. The automotive industry can best respond to this changed demand by investing in new, robot-based manufacturing lines so that it can introduce appropriate vehicles to the market.

At the same time, we see a huge potential for sales of our products and systems in general industry. Thanks to our product policy of combining top user benefits and efficiency, kuka solutions are increasingly being used in sectors such as medical technology, food and plastics, as well as the aircraft and solar industries. Here too, the business case for replacing present expensive manual and partly automated manufacturing processes with robot-based automation is becoming increasingly clear.

Once again in 2008, our Robotics division grew faster than the market. Orders received from general industry climbed 24 percent. Despite the economic crisis, the Systems division was also able to land important reference-worthy international solar and aircraft industry orders. Overall, the kuka Group’s orders received and sales revenues were on the level respectively slightly higher than at the same time a year earlier when the non-operative effects of the prior year are excluded. But we had to contend with a significantly lower operating profit (ebit) because of a one-time charge resulting from the cancellation of a major systems order for a North American automotive supplier. Without this one-time charge, return on sales would have been 5.7 percent, higher than the target margin of 5.5 percent. At the same time, the kuka Group’s solid balance sheet – with an equity ratio of about 25 percent and low debt – provides a stable business base for coping with the economic bottom that lies ahead of us.

The Group’s capacity utilization is secured thanks to the high order backlog; currently through to mid-2009. Nevertheless, no one can predict how the world economic crisis will evolve – whether the economy will continue to deteriorate or whether we have already passed the peak of the crisis. Since we have to assume that the automotive industry will continue to hold back on capital spending for some time because of its current sales problems, we will accelerate our efforts to expand our general industry business. In addition, we are targeting further growth in the United States and Asia, based on our strong market position in Europe. Our technology leadership position in the field of robot-based automation opens doors for us in many regions and industries. What is important now is to secure the Group’s profitability during this economic downturn. This will be supported by numerous contributing factors, not least of which is our integrated business model. We will intensify the collaboration between the two business divisions in areas such as research and development, as well as purchasing and sales, in order to tap into synergies and strengthen our operating business units’ ability to compete.

The year 2009 will be a challenging one for the kuka Group and its employees. We will face and deal with these challenges head-on. After all, kuka has many highly qualified and motivated employees, who commit their expertise and ideas toward achieving our goals. I am therefore confident that we will soon be able to once again report more positive news to our shareholders, investors, employees and business partners. We will use the economic headwind to further expand our market potential. Team spirit will decide: One kuka – We are kuka.

Sincerely,

Dr. Horst J. Kayser
ceo

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