consolidated financial highlights.

CONSOLIDATED FINANCIAL HIGHLIGHTS. KEY DATA (CHF 1000)

2000

1999

Change in %

2 223 813

1 387 856

60.2

133 608

(44 015)

6.0%

(3.2)%

11 423

12 687

122 185

(56 702)

72 799

(70 240)

3.3%

(5.1)%

113 388

93 462

5.1%

6.7%

170 837

(14 545)

7.7%

(1.0)%

Employees (year-end)

11 219

7 774

44.3

Capital expenditures

114 832

101 207

13.5

2 045 026

1 577 934

29.6

722 493

652 110

10.8

35.3%

41.3%

1 157 250

1 186 567

(2.5)

507.85

455.47

11.5

50.03

(50.07)

120.08

(10.16)

8

–

Sales Operating profit (loss) before amortization of goodwill % of sales Amortization of goodwill Operating profit (loss) Group profit (loss) % of sales Depreciation and amortization % of sales Cash flow (net cash from operating activities) % of sales

Total assets Shareholders’ equitiy % equity financing Stock market capitalization (year end)

21.3

SHARE SUMMARY (in CHF) Shareholders’ equity Net income (loss) Cash flow (net cash from operating activities) Capital repayment (proposal for 2000)

1

INDEX.

THE FISCAL YEAR 2000.

SOCIAL TRENDS: THE NETWORKED SOCIETY.

IMAGES OF THE FUTURE.

5

2

15

TEXTILE INDUSTRY: TECHNOLOGY TRENDS.

THE ROLE OF APPAREL: BETWEEN SMART FABRIC AND WASHABLE COMPUTING.

16

20

NEW MATERIAL: BOOM FOR INNOVATIVE TEXTILES.

22

26

ECONOMIC TRENDS: THE GLOBAL ECONOMIC SYSTEMS.

AUTOMOBILE 2.01: THE OFFICE ON WHEELS.

E-COMMERCE: BROADBAND CONSUMPTION.

28

30

THE ANNUAL REPORT 2000. FINANCIAL REPORT.

SURFACE TECHNOLOGY: LIMITLESS POSSIBILITIES.

34

36

APPENDIX.

39

74

3

THE FISCAL YEAR 2000. The year 2000 developed positively in all areas of the Group. The continuous recovery of the most important markets, the high interest in our new products and the increasing benefits from efficiency projects led to a marked improvement of the most important key data. Compared to the prior year, order intake increased by 67% to CHF 2,374 million (of which 33% due to acquisitions) and sales increased by 60% to CHF 2,224 million (of which 33% due to acquisitions). The strong rise in sales, the substantially more favorable cost structure and the higher percentage share of sales in new products resulted in a marked increase in profitability. The result before interest and taxes (EBIT) amounted to a profit of CHF 122 million, following a loss in the prior year of CHF 57 million. EBIT is stated after deduction of the amortization of goodwill in the amount of CHF 11 million. The EBITDA (Earnings before interest, tax, depreciation and amortisation) increased from CHF 37 million to CHF 236 million. Following a loss of CHF 70 million in the prior year, the Group’s net income improved to a positive CHF 73 million. Capital expenditures amounting to CHF 115 million were primarily attributable to the Transmission Systems business unit (42%), whilst 46% of the total capital expenditures were attributable to the Textile units and 12% to Surface Technology. The net cash flow from operating activities amounted to CHF 171 million, whilst the funding requirement for the acquisition of Barmag amounted to CHF 409 million; net debt thus rose to CHF 280 million and the equity ratio amounted to 35% (prior year 41%).

Continuous increase in all business units. Following the substantial decline due to market conditions in the prior year, Saurer Textile Systems, which is active in the natural fiber sector, achieved an impressive increase in sales. The even greater increase in order intake, caused by the economic upturn in the worldwide textile machinery business for staple fibers, led to an increased level of orders on hand at the end of the year. This ensures a high degree of utilization for the bulk of the capacities until the second half of the year 2001. Within the context of the strategic completion of the range of products for spinning machinery, the acquisitions of the Barmag and Neumag companies, which are leaders for the spinning of synthetic fibers, were completed during the previous fiscal year. These two companies were included in the Group’s financial accounts from May 1, 2000, and September 1, 2000, respectively. Combined they contributed CHF 469 million and CHF 406 million to order intake and sales, respectively, during the corresponding periods. The operating result of these two newly acquired companies during this period was at break-even. Encouraging progress has been made in the integration of these companies into the SaurerGroup. Teams covering the companies systematically analyzed the areas of purchasing and logistics, production, marketing and sales, research and development, EDP and human res-ources to formulate synergies, and thus, identify a future course of action. Sustainable cost savings with an annual effect of over CHF 15 million will result from the synergy projects implemented to date. In spite of continued low volumes in its traditional markets for agricultural vehicles and construction equipment, Transmission Systems achieved a 23% increase in sales from new projects in the automobile sector. Particularly the new projects in the fourwheel drive and luxury sport automobile sectors will maintain increasing internal growth. As a result of high capacity utilization, the good level of earnings and cash flow margins prevailing before the decline in the agricultural sector have again been achieved. In Surface Technology the large investments in capacity renewal and extension registered their first successes. Increase in sales amounted to 17%, of which approximately 8% were attributable to the effect of foreign currencies. However, further improvement in operating results has fallen far short of medium-term objectives. Growth in sales, without taking acquisitions into consideration, was realized in the Textile division even though the number of employees was reduced by 305, versus the prior year. Not included in those are 394 limited employment contracts associated with short-term output. Through the acquisitions of Barmag and Neumag 3,123 new employees joined the Group, resulting in a total number of 11,219 employees in the SaurerGroup as at 31.12.2000 (7,774 in prior year). On June 26, 2000, the SaurerGroup issued a 2 1⁄ 4% convertible loan in the amount of CHF 230 million, repayable on June 26, 2005. The conversion right can be exercised at any time at a conversion price of CHF 1,260 per registered share of Saurer AG.

5

Strategic direction of the SaurerGroup. Saurer intends to be an attractive partner for its customers, suppliers, employees and shareholders. This entails maintaining strong market positions in individual business segments, leading in technology utilization and by providing exceptional service. This will result in a continuous internal growth of sales and earnings. Market leadership in all areas will be strengthened or attained through specific acquisitions. In Textile Machinery, Saurer’s focus is on machinery and equipment for the production of yarn. By applying this focus also in cooperation with third parties Saurer should continue its evolution towards becoming an integral supplier for yarn production equipment. As the use of yarns grows worldwide at a long-term average of approximately 3–4% per annum, corresponding roughly to the expected increase in productivity of a new generation of machinery, significant market growth for spinning machinery is not necessarily anticipated. Growth will be attained through additional improvements in market position, complementary services and increasing consolidation in the industry.

TEXTILE MILL CONSUMPTION.

TEXTILE VALUE CHAIN. in 1000 tons

40000

Synthetic staple fiber – Neumag Filament – Barmag

35000 Spinning preparation Manmade total 30000 Air-jet spinning

Open-end/ring-spinning/winding – Saurer

Texturing – Barmag

25000 Twisting – Saurer

20000

Nonwoven

Cotton 15000

Weaving/knitting Manmade staple

10000

Finishing Manmade filament Source: PCI

5000 Wool 0 1970

1975

1980

1985

1990

1995

2000

2005

Embroidery Manufacturing

Saurer traditionally has held strong positions in staple fiber processing machinery for cotton, yarn blends and wool. As a result of the Barmag and Neumag acquisition during the course of the fiscal year 2000, the strategic gap in the faster growing markets for synthetic yarns could be closed. As such, Saurer has essentially concluded the “rounding-out” of its product portfolio in the spinning machinery sector. The primary focus during the next few years in the textile sector will be placed on the further increasing operating performance in areas of 1. Serving customers, 2. Innovation, 3. Logistics, as well as further improvement of resistance to the strong fluctuations in the textile machinery market. Over the next few years, Saurer’s expansion emphasis will be focussed on Transmission Systems. This should be expanded forcibly as a counterpole to the extremely cyclical textile machinery business. In this respect, Saurer intends to capitalize on growth opportunities in the agricultural vehicles and sports automobiles segments. New possibilities in this segments are constantly being opened as a result of the continuing trend of vehicle manufacturers to outsource activities not part of their core business, as well as component suppliers’ increased specialization. Additional opportunities for robust technologies are being offered in developing countries such as India and China. Hence, during the past year the Group opened a factory in New Delhi (India). Surface Technology is currently in a consolidation phase. Substantial previous investments in infrastructure, capacity and product development will be used for further improvements in volume and margins. Partnerships are foreseen in order to expand the worldwide activities and to achieve a more efficient use of the infrastructures.

6

BARMAG BUSINESS UNIT.

Barmag reached the turning point. With an order intake of over CHF 469 million, the Barmag Group registered a noticeable increase of over 46% compared to a very weak previous year. The major emphasis was on the markets of China and Turkey, where different large projects involving spinning and texturing equipment were concluded. After very weak sales in the first three months of the year, the market revived considerably in the second half of the year, but still continued to remain at a historically low level. Excess capacities in connection with the Asian customers and the instability on the oil markets, the suppliers of raw material for synthetic yarns, led to continued reticence in respect of new investment projects. We expect only a slow recovery of the business. The new Barmag 12-fold ACW winding unit (Automatic Craft Winder), introduced at the beginning of the year, and the Baby ASW (Automatic Spin Winder) developed by Barmag-Spinning Twist were received positively in the marketplace. Whilst the winding unit perfects the winding development of the yarn and enables an automatic package doffing thanks to fully integrated electronics, older equipment can be renewed and productivity can thus be increased due to the small construction size of the ASW. As a result of the acquisition of Neumag, Neumünstersche Maschinen- und Anlagenbau GmbH, Barmag was also able to complete its product program in the chemical fiber sector with synthetic staple fiber equipment, to complete its carpet yarn sector and to strengthen further the position of the SaurerGroup as an integral provider in the spinning equipment sector. In order to utilize existing synergies, the joint activities in the carpet yarn segment will be concentrated as from 2002 at Neumag, whilst the filament segment of Neumag will be integrated with Barmag. In addition to the objective of product renewal, high priority was placed on developing additional flexibility and resistance within Barmag to react to economic fluctuations. An important step in achieving this objective was the independence and outsourcing of areas generally not part of Barmag’s core competence, such as heat treatment, metal sheet production and welding. Approximately 130 employees from the central production function were transferred to competent partners at the same site so that the cyclical fluctuations of individual customers could be offset better. Similar measures will be taken during the first half of 2001 concerning approximately 120 additional employees. As such, Barmag has thus succeeded in further reducing vertical integration which historically had grown, in a manner socially acceptable, and thereby succeded in reducing continuously the sales-break-even level.

Neumag completes the synthetic sector. Neumag, which specializes in the area of synthetic staple fibers and carpet yarns, reported a slight increase in orders and earnings this fiscal year versus the previous year. Whilst half of the sales were previously attributable to each staple fiber and carpet yarn equipment, the order intake for the whole of 2000 shows the share for staple fibers in excess of 65%. High raw material costs resulting from the development of the oil price are dampening the readiness to invest, particularly in the classical carpet markets of Turkey, Belgium and the USA. In the carpet yarn segment the capability to deliver and install turnkey equipment quickly at the customer locations was refined further through consistent modular construction. A novelty was also introduced with regard to the equipment for polyester staple fibers. The finest fibers up to under 3 dpf (denier per filament) can be manufactured from the waste of PET bottles in very high quality by the equipment.

SAURER TEXTILE SYSTEMS BUSINESS UNIT.

Recovery in rotor spinning business. The rotor machinery business of Schlafhorst suffered particularly as a result of the textile crisis of 1998/99. For the Autocoro business unit this meant a difficult start with low rates of capacity utilization. During the first few months of the year business from Turkey revived quicker than expected, but declined again towards the end of the year because of problems in the banking and financing sector. Towards the middle of the year important demand

7

Heinrich Fischer, CEO and Delegated Member of the Board of Directors

developed from Asia and South America. The traditionally largest rotor market, the USA, also recovered in spite of continued low prices for open-end yarns, and increasing textile imports from the middle of the year forward. As a result of this market recovery, the rotor segment was able to increase order intake by almost 60% while sales increased by 30%, both versus last year. The encouraging level of orders on hand assures a high utilization of the reduced capacities, until well past the middle of the current year. The new ACO 312 rotor spinning machine with advanced automation, new controls and an improved technical air concept was introduced in selected markets. It was positively received by customers. Apart from having the largest number of spindles of all rotor spinning machines, the ACO 312 also sets new standards in quality, flexibility and economy. As a result, its first successes were visible after only a short time in the form of order intake and sales. The integration of the new spinbox developed by Schlafhorst into all machinery configurations could be concluded successfully this year. Today it is a permanent component of all Autocoro spinning machines with new qualities such as contact and maintenance-free magnet bearings, 3-D diamond coating and an energy-saving fiber-guiding element. Together with the Belcoro™ certification, the standard for high-quality yarns, it also ensured an increasing market share in the re-equipment of older equipment during the past year. The organizational changes already implemented in 1999 resulted in the achievement of the objectives for 2000. For the first time, the rotor-spinning sector successfully proved the functioning of its lighter structure. As a result of increased sales volumes and correlating longer delivery times temporary employees were engaged for a short time in the production and assembly area during the start-up phase in the late summer. This led to a small decline in the operating results.

8

Ring-spinning on a stable footing. The ring-spinning sector also profited in 2000 from a general recovery in its primary export markets. Zinser registered higher demand from Central and South America, the Near and Middle East, as well as from the Far East towards the end of the year. Customer interest was directed at all products, from the manual to the fully automatic roving frame, and from the 350-ring-spinning machine to the equipment in the worsted sector. To better serve customers worldwide, Zinser restructured its service sector during last year. The physical relocation of the after sales service into a service center with independent responsibility for profits, and the resulting organizational integration of the spare parts service as well as the customer service and consulting into one unit assure short contact channels and lead to fast reaction times and support the exchange of information. Apart from the further development of new products until the ITMA Asia in the fall of 2001, efforts are being concentrated on further outsourcing of the vertically integrated production to suppliers as well as transferring parts production and assembly. As such, a decision was taken late in the year to transfer the production of switch cabinets for all ring-spinning machinery to the new Barmag subsidiary in the Czech Republic, and to concentrate the core competence of spindles and lower rollers, in Oberviechtach. With the introduction of measures designed to further reduce structural costs and the breakeven point, Zinser is on a stable footing and can absorb the effect of economic fluctuations more easily in the future.

High capacity utilization for winding machinery. The winding machinery market showed its most positive side for Saurer in the past year. The investments, postponed as a result of the Asian crisis in the traditional markets, were ordered. In addition, demand for high-quality ring-spinning yarns increased worldwide over proportionately. Another contributing factor is the fact that an increasing number of manufacturers in the developing countries are being forced to replace their winding machinery, which has become obsolete and is no longer adequate to meet the quality requirements of their customers worldwide. Favorable market situation and the strength of the completely renewed winding machinery program led to an increase by almost 50% in both orders and deliveries compared to the prior year. The intensive discussion regarding automation to improve quality in production satisfied the increased requirements for high quality. The discussion led to high interest in the modular concept of the Autoconer 338, where not only well-known standard yarns can be quickly adapted, but also new market requirements, such as Lycra processing. Apart from further development of the Autoconer, advanced data systems such as the “Conerpilot” ensure a continued strengthening of Schlafhorst Winding Systems technological leadership. Thanks to leaner structures, improved production planning systems and the high motivation of the employees, Schlafhorst Winding Systems succeeded within a period of just a few months, to more than double its output last year. This high degree of flexibility should also be extended further in the coming years through the consistent focussing on the core activities.

Stable twisting business. In comparison with the spinning business twisting developed positively already during the second half of 1999. The high demand continued in the technical sector until the end of the year 2000, whilst the carpet yarn equipment business declined substantially in the fourth quarter, above all in the USA. A significant recovery was registered in particular in the Asian and Latin American markets, whilst Europe and NAFTA in aggregate remained at the positive level of the prior years. From the production of tire cord and finest fancy plied yarn at Saurer-Allma as well as the innovative processes in the filament wrapping sector for elastic weaving and knitting articles at Hamel to the two-for-one twisting machinery of Volkmann, the new products proved to attract great customer interest, which resulted in a further strengthening of the strong market position. Also, a further reduction in structural costs was undertaken in the twisting segment. Therefore, the planned outsourcing of the mechanical production to third parties at Saurer-Allma could be concluded successfully already at the middle of last year.

9

Creativity in the embroidery sector. The market for large shuttle embroidery machinery made a noticeable recovery during 2000. Due to improved demand from China, India, Turkey and Latin America, Saurer Embroidery Systems registered an increase of sales in excess of 80% compared to previous year. The new sales organization and the continuing expansion of the service organization, as well as the rising margins from the middle of the year forward, contributed substantially to the improved but not yet satisfactory result of this year. New developments to be presented for the first time at the ITMA Asia in October are anticipated to provide additional support to this uptrend. Melco, in Denver (USA), which is active in the segment of single- and multiple-head embroidery machinery, underwent an extensive restructuring in the past year. This program concerned the total product range, the sales organization and the distribution networks, logistics and production and as a result thereof, the whole cost structure. With substantially reduced costs, Melco can look back on a slow but continuous increase in demand. The fully modular machine concept, as well as the new Internet-supported e-business solutions for contacting and supporting widely dispersed customers, will give additional assistance to the new positioning of Melco as from mid-2001.

TRANSMISSION SYSTEMS BUSINESS UNIT.

Strong growth with new products in the automobile sector. In the year under report Graziano Trasmissioni achieved growth of 23% in both order intake and sales. This was particularly encouraging as the worldwide agricultural vehicle and construction machinery market, traditionally the major business of Graziano, was weak. The increase in growth resulted almost entirely from the new programs acquired during the last three years from the automobile sector. These projects were brought up to full volume production since the middle of last year, and will ensure further growth in the current fiscal year, independent of economic conditions in the automobile sector. With these new programs in place, the percentage of Graziano’s sales generated from the automobile segment increased from 11% (1997) to 33%. Following the worldwide decline in sales of agricultural machinery during the past two years, the first signs of a slow recovery occurred at the end of 2000. The merger of the largest customers of Graziano, New Holland and Case, led particularly during the first half of the year to a reticent attitude. Customer priorities were integration projects, restructuring of the product range or the transfer, closing or sale of production sites. New possibilities are expected to become presented to Graziano during the coming months and years as a result of the completion of this customer’s restructuring. The trend of outsourcing specialties with small or medium unit volumes, as well as the reduction in vertically integrated production at total systems manufacturers, is continually opening up new opportunities in this area. Growth possibilities are emerging for Graziano’s

Heinz Bachmann, CEO Saurer Textile Systems

10

Klaus K. Moll, CEO Barmag Group

robust technology in the aspiring developing countries such as India or China. Slowly increasing demand for synchronization units in tractors of Indian manufactures helped the Indian subsidiary, Graziano Trasmissioni India Ltd., to reach the break-even point just one year after starting operations. Increasingly also customers from Asia and Europe will be delivered products from India due to the high production quality and the high level of customer satisfaction. Graziano is projecting substantial growth in this sector. Graziano will also benefit during the next few years in the area of specialties for niche market through new products such as axles for city buses or golf carts. Business was stable during the past year with automatic gears and axles for fork-lift truks, which are delivered to customers like Linde and Jungheinrich. The most important segment for the further expansion of Graziano are gears and transmission components for automobiles. In this respect, Graziano will focus on specialties such as spur gears for four-wheel drive vehicles, synchronization units for high torque, as well as complex gearing subassemblies and complete gearboxes for luxury sports automobiles. Despite the temporary decline in the economy being experienced by automobile manufacturers in the USA and more recently in Europe, Graziano is benefiting from an increasing number of long-term projects. Following the USA, the trend towards four-wheel drive cross-country vehicles is beginning to penetrate Europe. This is resulting in the establishment of partnerships with those firms which possess specific know-how in critical components areas experiencing increased demand. Cooperation with customers such as Audi, VW, Renault, BMW, GM, as well as Steyr Power Train and Getrag, has been developed further during the past year and offers a solid basis for additional new projects. Graziano was also able to prove its capabilities in engineering and production technology in the growing segment of high torque gears for luxury sports automobiles and has obtained orders from Ferrari, Maserati and Lamborghini.

SURFACE TECHNOLOGY BUSINESS UNIT.

In the year 2000 Surface Technology reported growth of 17% in order intake and sales, of which 8% were attributable to the change in the Swiss franc/US dollar exchange rate. This was accompanied similarly by an improvement in operating results, which nevertheless fell short of target. Surface Technology is currently in a consolidation phase following the major investments of previous years in the modernization of its machinery and equipment, the expansion of capacity in most of its operations, standard IT systems and processes as well as in the development of the new site in Thailand to serve the Asian market. These investments constitute a solid basis to benefit from the growth opportunities in the market with relatively few additional capital expenditures. Whilst the business of plastification systems recovered at the beginning of the year with new orders from Europe and Asia, and

Marcello Lamberto, CEO Graziano Trasmissioni

Ulrich Bellgardt, CEO Surface Technology Group

11

Prof. Dr. Manfred Timmermann, President of the Board of Directors

Japanese machinery manufacturers even speak of a record year, the American injection molding and extrusion machinery market stagnated and declined slightly by year-end. Xaloy GmbH was established in Remscheid in order to expand the range of products from a supplier of parts to a supplier of complete plastification modules. It was formed from operations of the Barmag extruder assembly facility and will in future serve as an assembly site for plastification units in Europe. The expansion of the facility in Thailand continued to proceed systematically. Efforts were primarily focused on the qualification of the facility by sophisticated Japanese customers. This was successful in the case of the three most important OEM (original equipment manufacturers) customers. The efforts for a continuous improvement of product quality and supplier loyalty were favorably recognized by various customers. For example, Xaloy was selected by Husky, a leading worldwide manufacturer of injection molding equipment, as the supplier of the year in the USA and Europe. The thin-film-coating business also experienced a recovery during the past year. Whilst the demand for the traditional coating of tools hardly moved in England and in the USA, the diamond-like ADLC (amorphous diamond-like carbon) coatings, as well as new applications in the decorative sector, reported strong growth. The “In-House Coating Center” opened successfully at the drill manufacturer, Dormer. In order to simplify the operating processes and to reduce structural costs, worldwide activities in the plastification systems sector were combined in the year under report under the brand name of XALOY™ and placed under one management. The thin-film-coating activities were similarly combined worldwide under the brand name of IONBOND™.

12

Many thanks to the employees. The fiscal year 2000 demanded a high degree of commitment and flexibility from our employees and above all from the management of Saurer. In this respect high requirements were set by the abrupt fluctuations in demand and the resulting strong expansion of sales, as well as the many additional projects due to the integration of Barmag and Neumag into the SaurerGroup, and also by the structural adjustment in Surface Technology. The Supervisory Board and the Group Management wish to express their thanks to all employees and members of the management for their commitment to excellence. They have approached our unique opportunities with creativity, hard work and teamwork, and led Saurer back to the road of success.

Yours sincerely,

Prof. Dr. M. Timmermann,

H. Fischer,

President of the Board of Directors

Delegated Member of the Board of Directors

13

IMAGES OF THE FUTURE. The most important groups interested in the Annual Report of the SaurerGroup, namely our shareholders, customers and employees, are asking us more and more in what direction we are going or could go, rather than about what has happened in the past; what has occurred is of increasingly less interest. Together with the Gottlieb Duttweiler Institute, an organization, which is engaged professionally with research of the future, we have tried with this Annual Report to indicate possible future developments. The following eight images of the future include topics which are of importance for the SaurerGroup. Our task was to describe from an external point of view the changes in the business environment, for which we must prepare ourselves or even equip ourselves. Various external and internal experts* participated in the considerations and questions necessary for this, and we should like to express to them our profound thanks in this regard. We are very conscious of the fact that the discussions regarding the longer-term future are always very much in the balance and that the difference between what is very interesting and what is ridiculous and between comprehension and miscomprehension can be very slight. We are also similarly aware that the period for a part of these developments will be substantially longer than ten years. In other cases it will, however, proceed faster, and some items are exaggerated in order to make the trend clearly visible. Above all, we wish to achieve with these considerations that the problem areas highlighted will be included systematically in our daily decisions and thus support the permanent process of change. The future is finally also what we make of it.

*List of the interview partners: Ulrich Bellgardt, CEO, Xaloy Group; Holger Blumberg, Manager of Information Technology, Barmag AG; Christian Bode, Apprentice, mechanics and electronics, Barmag AG; Benjamin Bresser, Apprentice, mechanics and electronics, Barmag AG; Frank Ferlemann, Apprentice, information technology, Barmag AG; Ralph Knecht, Marketing Manager, Schlafhorst Winding Systems GmbH; Josef Kopetschke, Purchasing engineers, Porsche AG; Oliver Lapidus, Designer and CEO, Lapidus Haute Couture; Astrid Metzger, Personnel Manager, Saurer Sticksysteme AG; Winfried Popp, Member of the Board of Management, Barmag AG; Jan Markus Röttgering, Sales Manager, Schlafhorst AG & Co.; Gianni Sarti, Executive Vice President, Graziano Trasmissioni; Leopold Schöller, CEO, Schöller-Textil GmbH & Co. KG; Christina Waters, Apprentice, industrial management, Barmag AG; Shen Wei, Managing Director, Saurer Twisting Systems (Suzhou) Co. Ltd.; Burkhard Wulfhorst, Director, Institute for Textile Technology at the Technical University of Rhineland-Westphalia, Aachen; International research institutes: Copenhagen Institute of the Future, Harvard Business School, London School of Economics, MIT, Sloan Management School, etc.

15

SOCIAL TRENDS: THE NETWORKED SOCIETY. Which trends will characterize society in 2010? If the end of the twentieth century was characterized by the strong increase in personal lifestyle possibilities, the paradigm change from the atom to the bit at the beginning of the 21st century has had a decisive influence in many parts of our world on the profound change in social values and structures. The highly developed industrial societies demand more knowledge. Networking and global communication have become important in order to exist in an environment, in which the natural confrontation with a partially autonomously acting technology determines increasingly our social life. This new world is growing quickly together. In this respect, central institutions of the industrial society such as profession, workplace, home, market and living together have also changed. Traditional frameworks of reference have lost their force in many places. In their place new models of behavior have arisen. In the intensively networked companies the trends towards increasing flexibility and individualization are influencing social life. In this respect the classic structures for distinct careers and organized forms of life are now considered increasingly to be outdated. Above all with regard to working relationships in the service sector demand for flexible working partners is rising, for independent and mobile employees with know-how and many talents, who are willing to learn and who are always open to new ideas and are engaged in the companies on a project-by-project basis. Everything, which they require for working, their personal data and the connection to the broadband, are carried with them on a permanent basis. This social development also influences increasingly the organization of labor. People in the networked society have accustomed themselves quickly to the fact that they are relieved of routine tasks in their daily work thanks to the new media. Without the support of the networks, the growing volume of data could not be handled. Together with the more flexible forms of work the feeling of permanence, which constituted the core element of confidence, has been relegated to the background. The flexible work partners find it easy to change backwards and forwards between the various values and forms of life. This part of society is constantly changing. The generation @, the first generation which has grown up with the digital media, networks and the constant change, has had an easy access to the networked society. It finds a well-known and playful joy of life in digital equipment and virtual contacts. Many of these people understand their market value as a share price, which they wish to increase at each workstation. Although individuality and self-realization are their driving motives, this generation has also developed a team model, the impulses of which have also changed the social and economic values and thus also the working world: in 2010 differences in the working world which are based not on competence but on hierarchy will be less and less accepted. In the future there will thus be an increasing number of companies, which will function on the basis of the model of self-organizing systems. On the way thereto the generation conflicts will first of all become more relevant, triggered by the conflict between the rigid thought patterns of the industrial age and the self-consciousness of the generation @. Besides this new generation @ the group of older people are playing an important social role, in particular in the traditional industrial countries. This population group has become continuously larger as a result of the generally increased life expectancy. Even in old age, these still sprightly people are not withdrawing from social life. This group is formulating its claims and requirements self-consciously to the networked society. It can also afford to do so: with its large purchasing power this segment of society has become the most important consumer group, which has to be taken into consideration by many new offers on the market.

16

SAURER AND SOCIETY. Questions to Astrid Metzger, Personnel Director of Saurer Sticksysteme, Arbon

What do the employees expect from their workstation at Saurer? The employees naturally want first of all to assure their existence. Most of them, however, also look in their work for challenges to prove their competence and to develop them further. They want to be recognized for their high performance and also gain satisfaction and self-evaluation from this. As a result of the weakening of traditional contacts in society, many people will seek increasingly social contact, security, recognition and also security at their workplace. These developments require a new quality of corporate culture and attitude from management. In order to satisfy these changes, particularly structures, processes and ways of behavior must be reassessed and reoriented anew. In the future there will thus be less inflexible hierarchies and classic career ladders. The work content must offer sufficient room for the development and self-responsibility for the increasingly better trained employees.

What does this mean for the management of Saurer? For us management this means that our task will be moving increasingly in the direction of coaching, coordination and the optimal use of resources and above all in the orientation towards the customers in all operational activities. Competent people with a wide overview and the capability to implement complex projects with sophisticated teams will be in demand. With the increasing significance of the very volatile production factor of “knowledge,” personnel development is becoming even more important. The most important projects, which are being pursued by the Saurer Human Resources team, are also aimed in this direction. For example, the employees’ discussion was refined in all business units specifically as a development instrument for the recording and support of the competencies of the employees. For the further development of our management the 360° feedback method, i.e. a report from the chief from employees and colleagues, was adjusted to our requirements and in-troduced. These instruments are concerned much less with pure professional development but rather give impulses with regard to management understanding and behavior.

What does the workplace of the future look like? The strengthened self-organization and self-responsibility has naturally also effects on the workplace. The employees must have the possibility of cooperating in a less structured environment in flexible teams of specialists. We must succeed in staying on the ball in the area of modern communications in order to have ready also efficient aids for the organization and management of the widely networked teams. The orientation is thus based less on structures but increasingly on processes. Networks are gaining in importance at all levels. Virtual teams such as the group-wide synergy teams in the areas of purchasing, IT, etc. or the Monte Rosa research team are today standard at Saurer. They are being constantly brought into life and being terminated as soon as the objective has been achieved. As a network they surpass the classical organization structure and can thus act more flexibly and more specifically and use the knowledge optimally.

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“IN THE NETWORKED SOCIETY, IN WHICH KNOWLEDGE MEANS MORE THAN LAND OR FIXED ASSETS, THE VALUE OF COMPANIES IS SHIFTING INCREASINGLY TOWARDS THE WORKFORCE. THE INDIVIDUAL IS BECOMING THE INVESTMENT OBJECT OF THE 21ST CENTURY.” Stan Davis/Christopher Meyer, GDI IMPULS 3/99

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THE ROLE OF APPAREL: BETWEEN SMART FABRIC AND WASHABLE COMPUTING. In ten years the most important functions of apparel will still be the protection against the influences of the environment and to enable the wearer to look well. Thanks to the economic upturn the basic requirement for textiles for daily use could be covered in many places in the developing world. In the other regions of the world the entrepreneurs of life of the new millennium are placing increasing importance on the fact that their style of apparel expresses perfectly their personality whilst their body communication should present the value of their “personal share price.” Particularly in the developing economies of Asia and Latin America large pent-up demand exists for these functions of apparel. In the highly developed countries apparel can in addition take over several additional tasks: thus for many people it is becoming an intelligent second skin and an important interface to the broadband. The fashion and lifestyle industry has quickly understood the trend towards omnipresent computer mobility at the beginning of the new millennium and created with the connection between information technology and textiles first of all a trendy expression for the lifestyle of the generation @, which is in love with technology. Very soon, however, new customer segments could also be developed in the mass markets with innovative and comfortable applications. In 2010 computers and communications systems are miniaturized to the size of a button and keyboards and sensors can be weaved into the most varied textile applications, from the self-adjusting car seat, which draws attention to position errors, to the interactive information sofa, from the intelligent tie to the networked gymnastic shoe. Conductive fibers connect the various modules of the apparel, which is connected with the broadband through the personnel software assistant. Without it, the mobile knowledge workers could no longer cope with their growing volumes of data. The virtual assistant knows in which situation they are currently in and assures them with the currently required information and services, whether this is a free parking space or working documents, personalized leisure offers or the ideal meeting place for business people from several continents. The competitive pressure in the networked society requires that an increasing number of people are currently informed at all times, that they can separate essential from unnecessary information and do not waste their valuable attention with routine work. The intelligent textile solutions and the expanded functions of apparel are ideal for this. They permit a comfortable life with the highest degree of mobility. The sector of sport and outdoor apparel, which has been booming for several years, is one of the strongest driving forces for innovative apparel solutions in the highly developed countries. In the year 2010 functional fibers and materials have become real high-tech products for the sophisticated and spoiled consumers. This user demands from his apparel not only perfect perspiration, temperature, fragrance and humidity control, but also that his well-being is continuously monitored through the apparel and, if necessary, it should also organize independent help. Well-being, security and a high degree of freedom for individual outdoor activities are the standards in this respect. Increasing importance is also being given to the protective effect against ultraviolet and electromagnetic radiation. In this area of social discussions and fears the textile industry can create a new market with creative solutions. The apparel of the future also integrates a series of medical applications: sensors monitor the most important body functions and special textiles care for sick people with medication in a tailor-made fashion. In particular in the case of older people the step towards the initially rejected “computer compatibility” has been much simplified. Functional apparel and application specialties therefore also generate new demand in saturated and highly competitive markets. This trend is true not only for the former industrial states but also for the less highly developed countries. In this case textiles with a functional added value are also meeting constantly increasing demand. In particular fragrant textiles are popular as well as materials which no longer require any washing powder, but which clean themselves on contact with water. The ecological components play an increasingly important role in these countries and have helped recycled fibers and cellulose fibers to a breakthrough. On the other hand, materials, which change color with temperature, have survived only in niche markets. Similarly the fashion of throwaway apparel, which landed in the trash after being worn once, could not survive on the mass market. Although this fashion corresponded to the convenience trend and the fibers used broke down completely in an ecologically correct manner, many people could not ever really accept this throwaway function of apparel.

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SAURER AND THE ROLE OF APPAREL. Questions to Winfried Popp, Member of the Board of Management, Barmag AG, Remscheid

How does Saurer view new developments and trends in the apparel sector? The new apparel will be determined worldwide by the fast changing fashion. Not only in the case of materials but also with yarns new creations and developments will be constant. They will enter into fashion under the name of “fancy yarns.” Since a large part of the fibers produced by our machinery finally end up in textiles, we are extremely interested in these trends and attempt to finalize them through the quality and flexibility of our machinery and of the end product “yarn.”

How is cooperation with your customers? Worldwide we are cooperating very closely with our customers. Whilst increasingly more specialties are being manufactured in the USA and Europe and also modern technical yarns are undergoing further applications, the mass-market business is being transacted in Asia. In the meantime, China is the worldwide largest producer of chemical fibers. With the modular construction of our machinery we can thus meet various requirements. Customers can make tests in our laboratories with their specific materials and requirements, before they specify their machinery or undertake process optimization, even before the machinery has been installed in their factories. The period during which the investment is paid back, i.e. time to money, is thus substantially reduced for our customers.

Where do you personally expect the greatest changes? Apart from the chemical fiber threads known today, new modern materials will be introduced on the market, whereby the shares for technical applications as well as for leisure and sport apparel will further increase. Nevertheless I am convinced that in the next 10 years the largest number of people, and this not only in the Asian countries, will wear above all cotton and classical synthetic fibers.

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TEXTILE INDUSTRY: TECHNOLOGY TRENDS. Whereas during the twentieth century the increase of production speed and the degree of automation was considered for a long time as the central technological challenge of the textile branch, “innovation” and “service” counted very soon after the turn of the millennium as the most important success criterion. Compatible technologies, intensely segmented markets and higher expense for revolutionary developments made a change of ideas necessary, so that now even the basic research starts completely in the market. Added value concepts are being demanded, which permit highly flexible solutions, create a unique product value and enable a better use of the raw material. In 2010 what counts is product performance instead of production performance. In this respect the adjustment to new processes within the textile chain is also required, such as, for example, the fully automatic 3-D stitching in the automobile industry or the laser stitching of waterproof textiles. The competitive market requires innovative products with a high added value, which are tailor-made with regard to the cost structure of the relevant countries. In the production process "soft” factors have gained in this respect increasingly in importance in contrast to a pure increase in speed: a high degree of flexibility, processing without problems, low maintenance cost, excellent service and a high raw material tolerance are now decisive, since the customers require technical solutions, which permit them to react flexibly and just-in-time to the demands of their markets. These include machinery, which can be converted quickly and at low cost, requires little maintenance and can also produce small batch sizes economically. Functional specialties and new product qualities certainly create new markets, but they are always also evaluated from the standpoint of economy. New technologies and equipment must therefore improve the overall efficiency or enable a specific increase in value of the product. Since primarily product advantages determine profitability, the whole technological process has accelerated. In this respect the time until the investments pay for themselves is becoming increasingly important for the investment, i.e. time to money. The manufacturers decide quickly and address creatively the characteristics demanded by the market. A new concept of quality has in this respect become an important differentiation characteristic. It no longer refers to individual aspects but includes the whole process, from the processing of the raw material and all the prior and subsequent process stages up to material handling, cost structure and flexibility. The end customer finally determines this quality just as the processes are driven more strongly from the end product and the uniqueness of which should be guaranteed. Leading technology providers thus support their customers with process competence, help with process reductions and offer them optimal total services. Service and convenience have become central factors in this respect. They permit the manufacturers to meet the segmented requirements of their customers quickly and flexibly. For in the global real time economy the speed of adaptation is decisive: Special effects must be able to be integrated simply, the product content must be quickly readapted and various qualities and raw materials must be able to be processed at the same time. And naturally the access to digital media is also part of the basic equipment of this technology. In 2010 it has become self-explanatory in many sectors that the networked customers have the last word. Processes for real time customization and virtual product simulations through the broadband are thus the standard. An important technological market in the old industrial countries is the recycling and the spinning of secondary fibers. Since there has been no shift in production particularly in the sector of house and home textiles, new service providers with creative solutions were able to establish themselves in this market early in the 21st century. Increasingly stricter legal requirements strengthened this trend.

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SAURER AND TECHNOLOGY. Questions to Ralph Knecht, Marketing Manager, Schlafhorst Winding Systems GmbH, Mönchengladbach

Textile machinery is becoming increasingly faster and lasts longer; is there any point for technological innovation? Yes, exactly for that reason. Traditional arguments such as, for example, the speed of the machinery has long lost their value as the differentiation characteristic. Our customers can only qualify themselves towards their own customers through flexibility and quality and in their capability to follow new fashion trends more quickly. Excellent technological knowledge has become a competitive advantage exactly in this respect. For example, we are undertaking with the University of Aachen comprehensive process analyses in inter-disciplinary teams with regard to the most varied process technologies. We are thus concentrating no longer only on one process stage but are optimizing the whole process and can thus increase the product quality or also variability.

Can you give an example of this? Today we can, for example, follow on-line the quality parameters of the manufactured products and thus simulate the effects of quality changes on the total process of textiles and thus categorize the relevance of the quality parameters. This use of product simulations is being constantly refined further in our technology teams. With this textile know-how winding technology will achieve a new quality standard.

Customer service is becoming increasingly important; what is Saurer’s position here? We have made progress, but not to the extent to which we intend. Although it is theoretically possible to identify errors within the shortest time by means of remote diagnosis and to draw the customer’s attention to the wear and tear of a part, the networking is not yet secure throughout the whole value-added chain from the customer to service and back again. The objective is nevertheless to establish this connection as quickly as possible.

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“IN THE FUTURE, FLEXIBILITY, MAINTENANCE QUALITY AND RAW MATERIAL TOLERANCE OF THE MACHINERY WILL BE DECISIVE. I HOPE FOR A TECHNOLOGY WHICH WILL PRODUCE A HIGH-QUALITY YARN EVEN FROM MEDIUM-QUALITY RAW MATERIAL.” Leopold Schöller, CEO of Schöller-Textil GmbH & Co. KG

NEW MATERIAL: BOOM FOR INNOVATIVE TEXTILES. In the competitive market at the beginning of the millennium mainly the technical textiles with their functional advantages assured strong market growth. Textile fibers were able to penetrate many new material areas. The highest rates of growth were in this respect registered by applications in the areas of composite synthetic materials, textile reinforced concrete and medicine. In the aircraft and space industry as well as in automobile production composite synthetic materials with innovative textile structures have been used widely. As a result of cooperation with partners in product, processing and machinery development, technological progress has become possible, which appeared improbable a short time before. In 2010 an aircraft hull thus consists already up to sixty percent out of composite synthetic materials. The creative connection of old process knowledge, new technologies and high-tech threads has opened interesting markets for composite synthetic materials with a high degree of stability and low weight. In concrete construction textile fibers can now replace steel in many areas: low-cost, alkali-resistant, highly stable, flexible and drawn fibers are laid exactly in the calculated lines of force; they do not rust and similarly make thin and stable construction elements possible. This development has given strong impulses both to the textile as well as to the construction industries. One of the prerequisites for this was the development of production processes, which can produce more complex structures from existing textiles than, for example through stitching. Many new working materials also arise through the combination and variation of existing fibers and textiles. Particularly in the former industrialized countries there were thus large market segments for modifications, refinements, new surfaces and the integration of chemical materials. In addition, new fibers and yarns open up a broad scope of interesting applications. Thus yarns with copper cores are integrated not only into intelligent apparel but also into textile wall coverings. They permit a cost-effective and efficient solution protection against electro-smog, which is becoming increasingly important, and also guarantee security against being overheard in sensitive spaces. Following a slow start to the turn of the millennium the environmentally friendly cellulose fibers experienced a boom. There were two reasons for this. On the one hand ecological criteria became increasingly important for the end consumer and at the same time the commencing worldwide shortage of water and the increased use of chemicals made cotton production more expensive. The natural fibers from the raw material, wood, suited the increased requirements in the networked society and show the trend for new developments: they are friendly for the skin and the environment, are biologically disposable, have a high stability profile and give the manufacturers a broad scope for innovative handling and optical variants. The fibers from algae, fruit and vegetables, which were highlighted by the media, have on the other hand survived only in small niches.

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“IN THE FUTURE THE CAPABILITY IS DECISIVE TO BE ABLE TO REACT QUICKLY TO THE MARKET. THE PREREQUISITES FOR THIS ARE CREATIVITY, GOOD TECHNOLOGY AND A GOOD MANAGEMENT. IN ALL STAGES OF MANUFACTURING CLOSER COOPERATION IS REQUIRED.” Burkhard Wulfhorst, Director of the Institute for Textile Technology, Aachen

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ECONOMIC TRENDS: THE GLOBAL ECONOMIC SYSTEM. The global economic system during the first decade of the 21st century was driven by the factors of globalization, networking, concentration and decentralization as well as by real-time solutions. In the highly developed markets the scene is determined by small, agile units, which interreact together within changing alliances and networks. Many companies followed the trend towards decentrally structured, flexible and in part virtual organizations, in the headquarters of which a small management team determined the strategic course. Subcompanies and independent teams within the organization manage the operating business under their own responsibility. In parallel, strong oligopolies, which have survived out of the large wave of mergers at the turn of the century, are also participating in the global market. The role of politics as a regulatory factor in the economy has declined further in this system. The requirement of the real time economy for accelerated delivery has made the shortening of the logistics chain necessary in many sectors. Around the economically dominating core regions of North America, Western Europe and parts of Asia, belts of delivery regions have thus been established, which are profiting from a new calculation of the logistics and the valueadded chain as well as from a further increase of the degree of automation. With regard to labor costs large differences still exist in the highly developed countries. In particular the wage gap between the knowledge workers, who are paid in accordance with the model of the star system, which characterized already at the turn of the millennium the sport, entertainment and the financial worlds, and the service employees became even wider in the 21st century. This led to a rise in the rate of criminality, effected the crisis of the middle classes in the United States and brought into being new social protest movements. Apart from the dominating US market the most important development in the world economy during the first decade of the 21st century took place in South East Asia and resulted in the economic center of gravity of the world shifting further in the direction of the Pacific Basin. The main reason for this was above all the different growth curves of domestic product and the size of the populations. Above all China contributed essentially to this boom with strongly growing markets and enormous pent-up demand: thus the Chinese consumer goods industry and thus also the textile industry has therefore grown up to the year 2010 by up to twenty percent per annum, thus corresponding to a doubling every 4 to 5 years. The economic development in Asia led, as already before in Latin America, to the formation of a middle class, which is comparable to those in the OECD countries. For example, twenty percent of the population in China and India together represent 450 million people. Even this narrowly classified middle class is even larger than the middle classes were together in Europe and the United States at the turn of the millennium. Even under the assumption of weak growth forecasts until the year 2020 this class is continuing to grow quickly in absolute numbers and is leading to the creation of large new consumer segments. Although the distribution of income in the Asian countries is still very uneven, it can be assumed that in this region there will be further strong growth towards a consumerorientated life-style and thus to an increasing use of textiles per inhabitant.

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SAURER AND ECONOMY. Questions to Jan Markus Röttgering, Sales Manager, Schlafhorst AG & Co., Mönchengladbach

What does globalization and worldwide networking mean for Saurer? With the concept of the Saurer hotels, i.e. a common infrastructure in the most important markets for all business units, we have developed a tool in order to be competent worldwide and to be close to the customer. Thanks to our size and the corresponding economy of scale, smaller business units can also be served efficiently and at low cost from these “hotels”. Saurer can therefore provide first class service on site worldwide, which individual business units on their own could not organize.

Questions to Shen Wei, Managing Director Saurer Twisting Systems (Suzhou) Co. Ltd., Suzhou

What attracts you in your activity for the Saurer Group? For my employees and myself it is a great and exciting challenge to develop the market in China for Saurer. Since two years we are producing in Suzhou for the Chinese and other Asian markets and have successfully developed our own infrastructure in Peking and Shanghai for developing the market within the framework of the Saurer hotel concept. Our customers rely on quick support; today we have everything on site, from service and maintenance and repair shop up to the fast provision of spare parts or training for new products and applications. In this respect we are able to prove daily the targeted service leadership of the SaurerGroup.

Why is Saurer developing China? Today China is already the largest manufacturer of textiles worldwide. With a partially very outdated machinery sector and many local providers, China is also the largest textile machinery market. The increasing opening of the market and the concentration on exports of the Chinese textile industry offer great possibilities to technologically leading providers. Our challenge is to implement the Saurer strategy here in this vital market.

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E-COMMERCE: BROADBAND CONSUMPTION. Consumption habits change slowly but surely. In 2010 electronic trading is so widely extended that no one any longer emphasizes the “e,” as was the case at the beginning of the millennium: transactions via the Internet connection to the data network are part of the normal business day; from engineering and purchasing as well as remote maintenance up to the spare parts area, where the logistics software of the customers can look into the inventory levels or can view the actual position of an ordered part automatically on the control system. The data highway has also become an airway, since the broadband, apart from its high performance networks of fiber optics, also relies on satellite technology. Formerly peripheral regions of the world, the development of which would have been too expensive by fixed network, have thereby created their access to the global economy and are now increasing competition. Nevertheless, in 2010 the growth of the broadband economy in North America, Europe and the Asian Pacific Basin is still leaving the other regions far behind. The sale of components for industrial equipment via the Internet has increased spectacularly. Already in 2005 it accounted for twenty percent of total sales and no sector was left untouched by this fast and efficient sales channel. The behavior models, which people have learned in the worldwide department store of the Internet, were transferred in the broadband to the business-to-business platforms. “Consumer control” was the slogan soon after the turn of the millennium, i.e. the shift in the information leadership from the trader to the customer, whose relationship thus changed radically. For not only the expectations increased with the additional knowledge, but the customers also took active influence on the structuring and the conditions of the offer as well as of the products and services which they required. If the customers in the Internet have reacted to the oversupply with mouse-zapping and the search for options, which are meaningful for their individual lifestyles, they expect tailor-made solutions on the vertical business platforms, which, when necessary, can combine also the components of several manufacturers. Continuously improving, autonomous and software-supported agents provide these propositions as well as navigation in the transparent offer. With their integration into the broadband the convenience and operating friendliness of textile machinery has also increased substantially. Product contents are developed and integrated independent of site, disturbances are discovered and in part repaired by remote diagnosis, and new product qualities are compared with the simulation undertaken in advance. Function controls as well as regular software updates by the producer take place in many cases automatically. In 2010 it is the rule that the Internet is no longer used mainly by people but also by intelligent objects, which communicate and negotiate transactions with other objects.

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SAURER AND E-COMMERCE. Questions to Holger Blumberg, Manager of Informatics, Barmag AG, Remscheid

What importance has networking for Saurer? Our objective is to become the “service world champion” in the textile machinery business. In this respect e-commerce offers excellent tools. From the training of our local service engineers and customers through constant information and availability of products up to the on-line networking throughout the whole value- added chain. Even the exchange of information with and via other companies, which was only slightly pursued hitherto, is now becoming an important part of our sales strategy.

Will Saurer penetrate the sector of the new economy with e-commerce? The effective sale of textile machinery will certainly not occur primarily via the Internet in the foreseeable future. Nevertheless, the influence may not be underestimated. The sales business will change, but the contact to our customers will not be replaced but complemented by the new media. With these, every degree of detail required for information will be available at any time and at any place. Virtual structures can thus be developed quickly, in which all parties in the daily business can cooperate without any time delay.

How is Saurer preparing for this development? At Saurer we differentiate three areas of application where e-commerce will have influence in the future. First of all sales will be increasingly supported by e-commerce applications and in particular the processing of spare parts and consulting will be simplified via the SECOS Internet solution. Furthermore, we see a great potential in purchasing to cooperate closely with our suppliers and to coordinate better within the SaurerGroup. Clear savings can be realized in the future in particular through the pooling of purchasing volumes and the settlement via market places. As a third area we see the numerous possibilities of process optimizations through networking such as in the case of common know-how data banks and information systems. With this we assure for our customers faster development and production times as well as an improved satisfaction of their specific requirements.

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“THE INTERACTION OF MACHINES WITH MACHINES WILL BE THE BASIS FOR THE INCREASE OF HUMAN PRODUCTIVITY.” Michael L. Dertouzos, Manager of the Informatics Institute at MIT

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AUTOMOBILE 2.01: THE OFFICE ON WHEELS. The traffic on the roads and in the air has continued to grow strongly up to 2010. In the developing countries cost-efficient standard solutions have clearly reduced the break-even point for the private automobile for large segments of the population, whilst in the former industrial countries, where the private households spend almost as much for the automobile as for food and rent, mainly the strongly increased truck traffic has contributed to a marked growth in traffic. Just-in-time production and online shopping have shifted inventories to an increasing extent on to the roads. The results were chronic traffic jams, loss of time and frustrated automobile drivers. The traffic on the roads has become more intense, but life in the traffic jam has become more agreeable. Thanks to traffic telematics, electronic control systems, intelligent highways and autopilots, for which driving licenses are no longer required, the social role of the automobile has slowly changed. Emotional factors such as lifestyle and cultural values no longer only count; for the networked society the automobile 2.01, the automobile in 2010, has become an office and living room on wheels. Computer, broadband access, television, playstation VII, refrigerator and even toilet are part of the premium standard just as the increasingly popular traffic jam gadgets in recent times in the form of interactive entertainment. The automobile 2.01 is no longer a machine but a computer and communications system, which makes driving an interactive computer application. The user starts the driving program or transfers to the autopilot because he is working or wants to relax. Driving is undertaken by voice and joystick. Apart from several navigation and safety programs as well as office aids, which are offered in accordance with graded convenience standards, one can also chose between several driving types, noise and fragrance backgrounds, from the old-timer to the sports automobile. New materials have been quickly applied, such as composite synthetics with innovative textile structures or pressure sensitive intelligent textiles for seat covers. The most important driving forces for new developments were increase in comfort, individualization and the reduction of environmental pollution. The transmission systems registered further progress in technology. Apart from the electronically controlled low fuelconsumption diesel engines, alternative power sources have established themselves in 2010, such as combustion cells, hydrogen and biogas. Electro-automobiles with hydrogen or hybrid power sources support low pollution driving and are becoming a proven and popular system in the large cities threatened by smog. Photovoltaic cells on the roof provide additional energy on board. This development rendered necessary a redesign of the whole transmission chain. The progress in electronics created the basis for modern automatic transmissions. They permitted cost effective and above all fuel-saving solutions and offer the users of the automobile 2.01 at the same time increased driving comfort. Specialized suppliers provide the market with individualized equipment, ranging from more safety to individual computer systems and more fun. In the tractor sector the development up to 2010 was also driven strongly by the various customer requirements. At the beginning of the 21st century a substantial pent-up demand was shown in the developing countries for tractors equipped with traditional transmissions, whilst in Europe and North America above all highly specialized agricultural vehicles, offering the highest productivity and user comfort, provided for growth. GPS (global positioning system) is a standard in this respect. It permits precise driving through the large fields when sowing seed or automatic ploughing or harvesting. In general, in this respect there will be a trend towards the ecological tractors due to the increased consciousness of the consumers and the stricter environmental regulations. In both sectors innovative providers are occupying the market place with cost efficient solutions and new product developments.

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SAURER AND AUTOMOBILE 2.01. Questions to Gianni Sarti, CEO of Graziano Trasmissioni, Turin

Where does Graziano see the greatest challenges during the next few years? We see as our greatest challenge during the next few years the extension of our know-how to the development of integrated systems and modules in the transmission systems sector together with our existing partners. We shall also benefit from the increasingly higher requirements for the safety of the transmission components. In addition, the growing number of types of automobiles and the increasingly higher requirements for comfort will result in large automobile manufacturers tending to transfer their in-house capacities to third parties and to rely on qualified suppliers such as Graziano.

What makes you so sure that Graziano is predestined for this? Our strong growth in the past few years has taken place above all in the automobile sector, where we were able to differentiate ourselves clearly from the competition through our image and size. Thanks to our specific know-how in a focussed area large automobile manufacturers see us as the ideal partner for small and medium series; we undertake tasks, which would entail too much expense for large manufacturers, but as a niche supplier we do not enter into a competitive situation with their own large research departments, which are occupied with the total system.

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SURFACE TECHNOLOGY: LIMITLESS POSSIBILITIES. The development in surface technology during the first decade of the 21st century was characterized both by evolutionary as well as revolutionary steps. The thin film coating processes were adopted simultaneously by engineers, architects, designers and medical experts as a key technology. Many important material qualities are thus surface qualities, which can be combined with the basic material in a cost-efficient and resource-saving manner by means of thin film coatings. Qualities not realizable before have thus become possible also for the mass market. These applications succeeded in emerging from the laboratory into practice and are able to implement their functional advantages at competitive prices. The qualities most in demand include the reflection and absorption of electro-magnetic rays, favorable friction coefficients under the most varied pressure, temperature, humidity and material conditions as well as resistance to corrosion and to wear and tear. The breakthrough succeeded when the production and distribution costs could be reduced substantially and important application requirements were consistently foreseen. Razor blades with long-lasting and skin-friendly diamond coatings and frictionless machine parts pointed the way already at the turn of the millennium. Leading Formula I teams already used at an early stage thin film processes to increase engine performance and to achieve a reduction of the weight. In 2010 hardcoated surfaces were used in many moving parts in the automobile industry. They enabled low consumption diesel engines and the use of environmentally friendly fuels with substantially reduced sulfur content. Functional and decorative coatings have increased the value of the plastic materials, in electronic end products, miniaturized components as well as for household applications. Scratch-free coatings are thus very popular; they look like metal but neither corrode nor show contact marks. Door handles, which limit static charge, are also of interest or cooking spoons and the handrails of fire staircases, which block the transfer of heat. With regard to industrial applications the efficiency and life span of machine parts were increased through the cost-efficient application of coatings; in particular cutting tools could be constantly improved. With regard to medical equipment and implants thin film coatings are experiencing a substantial boom thanks to their high resistance to wear and tear and their biological compatibility. The coating systems permit the residue-free through-flow of body liquids and reagents. Physical applications such as self-cleaning surfaces and foils have resulted from the progress in micro-structuring technology. They are popular above all in outdoor applications such as roof tiles, façade colors, solar modules, garden furniture and traffic signs. The nano technology also makes an important contribution to the success of surface technology with extraordinary new chemical and physical qualities of the coated materials. Thus tools require no cooling agents. Colors become ultrahard, glass panes are resistant to heat and panels are adhesive on one side and reject pollution on the other. Industrial tools as well as everyday objects thus become more comfortable to use, as well as safer and more efficient. However, this research also brought to the marketastounding trend solutions for unreal problems, which disappeared again. In 2010, however, surface technology has achieved the change from the high-tech sector to the mass market in many areas of application. Nevertheless it was shown that the market growth depended on the whole more on cost efficiency than on constantly newer but, however, minimal quality differences. The most important limit for new solutions in surface technology are set neither by fantasy nor by the technical implementation, but by the cost factor. This represents the greatest challenge.

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INTERVIEWPARTNERS.

The Interviewpartners of the SaurerGroup from left to rigth: Gianni Sarti, Executive Vice President Graziano Trasmissoni; Winfried Popp, Member of the Board of Management, Barmag AG; Ralph Knecht, Marketing Manager, Schlafhorst Winding Systems GmbH; Astrid Metzger, Personnel Manager, Saurer Sticksysteme AG; Shen Wei, Managing Director, Saurer Twisting Systems (Suzhou) Co. Ltd.; Holger Blumberg, Manager of Information Technology, Barmag AG; Jan Markus Röttgering, Sales Manager, Schlafhorst AG & Co.

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38

THE ANNUAL REPORT 2000. FINANCIAL REPORT. Consolidated financial statements

Consolidated financial highlights

40

Report on the financial statements

41

Consolidated income statement

46

Consolidated balance sheet

47

Consolidated statement of cash flow

48

Consolidated statement of shareholders’ equity

49

Principles for the consolidated financial statements

50

Notes to the consolidated financial statements

52

Report of the Group auditors

61

Supplementary information

62

Share statistics

63

Multiple year comparison

64

Financial report of Saurer Ltd.

67

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CONSOLIDATED FINANCIAL HIGHLIGHTS

Key data 2000

1999

Change in %

2 223 813

1 387 856

60.2

Operating profit (loss) before amortization % of sales Amortization of goodwill

133 608 6.0% 11 423

( 44 015) (3.2)% 12 687

Operating profit (loss)

122 185

( 56 702)

72 799 3.3%

( 70 240) (5.1)%

Depreciation and amortization % of sales

113 388 5.1%

93 462 6.7%

Cash flow

170 837

( 14 545)

7.7%

(1.0)%

11 219

7 774

44.3

114 832

101 207

13.5

2 045 026

1 577 934

29.6

722 493 35.3%

652 110 41.3%

10.8

1 157 250

1 186 567

(2.5)

507.85

455.47

11.5

50.03

(50.07)

120.08

(10.16)

8

–

(CHF 000) Sales

Group profit (loss) % of sales

21.3

(Net cash from operating activities)

% of sales Employees (year end)

Capital expenditures Total assets Shareholders' equity % equity financing Stock market capitalization (year end)

Share summary (CHF) Shareholders’ equity Net income (loss) Cash flow (Net cash from operating activities)

Capital repayment (proposal for 2000) * 1996 angepasst (siehe Seite 7)

40

MANAGEMENT’S DISCUSSION OF RESULTS

Overview of the year 2000 The economic situation of the Saurer Group improved substantially during the course of the year. Following a loss of some CHF 70 million in the prior year a group profit of over CHF 73 million was achieved during the year under report. The main contributors to this encouraging development were the recovery of the Asian textile machinery markets, the effect of the restructuring measures already introduced as well as the generally positive economic environment. The Group has grown and thus strengthened its strategic position with regard to the completion of its product range by the acquisition of Barmag AG as at

May 1 and Neumag GmbH & Co. KG as at September 1, 2000. The integration of these companies constituted a difficult operation for all participants during the year under report in order to realize the intended synergies. Several teams were involved in the realization of the most different synergy potentials, for example in the areas of technology, market image and organization, human resources, information technology and software, product development and supply chain management. Today, all the business units of the Group are well positioned strategically with leading market positions and technological leadership.

Order intake 2000

1999

Change in %

Total

2 373 558

1 419 026

67.3

Textile segment Components segment

1 810 675 562 883

950 771 468 255

90.4 20.2

(CHF 000)

Order intake developed positively during the whole year and amounted at the end of the year to CHF 150 million in excess of the sales realized. The recovery resulted mainly from the Asian region, in particular from India and China as well as Turkey. However, the European markets and the NAFTA countries also contributed to the improved course of business. The much increased order intake in the textile sector is partially due to acquisitions. Adjusted for acquisitions the increase amounted to 41%.

In the Components segment the new transmission technology projects in the automobile industry sector were well received, which is reflected in an increase of 23% in order intake. This success could be achieved from internal growth in spite of weak markets in the traditional sales areas of construction machinery and agricultural vehicles. Surface technology increased orders by 17%. Sales have more than doubled in the Asian region. The investments undertaken during the past few years in the extension of the production facilities thus showed their first successes.

Development of sales Total

2 223 813

1 387 856

60.2

Textile segment Components segment

1 659 721 564 092

918 615 469 241

80.7 20.2

In all business units substantial sales increases were achieved. In total there was an extremely broad geographic support for the growth,

which did not exist during the past few years. Adjusted for acquisitions, the increase in sales amounted to 27%.

41

MANAGEMENT’S DISCUSSION OF RESULTS

Orders on hand 31.12.2000

31.12.1999

Change in %

Total

793 315

268 233

195.8

Textile segment Components segment

767 897 25 418

241 606 26 627

217.8 (4.5)

(CHF 000)

The strong increase in orders led to longer delivery times and thus to an increase in order backlog. The order backlog of the Barmag/Neumag Group amounting to CHF 385 million is included in the Textile segment. Accordingly, for Saurer Textile Systems there was an increase of 59% from CHF 242 million to CHF 383 million.

In the Components segment, the order backlog is a less significant indicator since the throughput time of orders generally amounts to less than one month. General agreements concluded for larger orders are not included in order backlog but only recognised when individual orders are processed.

Geographic sales development (CHF 000) Europe North and South America Middle East and Far East Total

The sales were distributed almost equally throughout all continents. In comparison with the prior year, a substantial improvement occurred in the Middle East and Far East. Sales in countries such as India, China and

2000

1999

Change in %

757 313 703 536 762 964

599 555 517 738 270 563

26.3 35.9 182.0

2 223 813

1 387 856

60.2

Turkey developed strongly. Adjusted for acquisitions, sales increased in Europe and in the American markets by 9%, whilst the increase in the Asian markets amounted to 106%.

Improvement of margins (CHF 000) Sales Gros profit Operation profit (-loss)

The gross profit margin of goods sold increased by almost 4%. Contributing to this increase were higher prices, an improved exploitation of the production capacities, additional savings through outsourcing of parts and components as well as internal cost reductions.

2000

%

1999

%

2 223 813 551 715 122 185

100.0 24.8 5.5

1 387 856 290 747 ( 56 702)

100.0 20.9 ( 4.1)

The operating profit improved by CHF 179 million in comparison with the prior year. Amounting to 5.5% of sales, it did not, however, achieve the objectives. Further measures for an improvement of the cost structures are underway.

Development of operating result (before amortization of goodwill) (CHF 000) 2000 1999

The improvement in profitability is shown clearly in the development of the four month results during the last two years. Following substantial losses at the beginning of the year 1999 a constant improvement of

42

Jan–Apr

May–Aug

Sep–Dec

Total

29 505 ( 32 827)

25 587 ( 25 187)

78 516 13 999

133 608 ( 44 015)

the results was achieved. This was attained on the one hand through higher sales volumes and on the other hand as a result of further cost reductions.

MANAGEMENT’S DISCUSSION OF RESULTS

Results Textile segment (CHF 000)

2000

%

1999

%

Sales

1 659 721

100.0

918 615

100.0

Cost of goods sold and operating expenses before amortization of goodwill Research and development

1 479 347

89.1

920 690

100.2

96 800

5.8

70 483

7.7

Operating profit before amortization of goodwill Amortization of goodwill

83 574 8 722

5.0 0.5

(72 558) 10 100

( 7.9) 1.1

Operating result

74 852

4.5

( 82 658)

( 9.0)

Depreciation and amortization

65 614

4.0

54 029

5.9

140 466

8.5

( 28 629)

( 3.1)

Operating cash flow Order intake Order backlog

1 810 675 767 897

950 771 241 606

52 615 740 532 8 346

40 321 366 974 5 134

Saurer Textile Systems Barmag Group

1 199 630 460 091

918 615 –

Total

1 659 721

918 615

Capital expenditures Net assets Employees (year end)

Sales development by division

With regard to the strategic completion of the product range, the two companies Barmag AG and Neumag GmbH & Co. KG were acquired during the course of the year. Barmag was consolidated as from May 1 and Neumag GmbH & Co. KG as from September 1, 2000. Whilst the Barmag/Neumag Group still made no contribution to operating result in the year under report, the situation improved substantially at Saurer Textile Systems. The sales growth at Saurer Textile Systems amounted to 31% and the return on sales before amortization of goodwill almost to 7%. Price quality improved substantially as a result of the satisfactory utilization of capacity during the course of the year. Furthermore, additional progress could be achieved in the reduction of fixed costs. The strong increase in volume required major efforts of the supply chain management, in order to ensure the necessary supply of parts and components within the simultaneously continuing outsourcing process. The research and development efforts were maintained at the same level. The assurance of permanent, innovative progress remains a key component of future success.

Amortization of goodwill did not increase in comparison with the prior year in spite of the Barmag acquisition, since the prior period included a special one-time charge. With an operating cash flow of CHF 140 million, an improvement of CHF 169 million could be achieved in comparison with the prior year. This reflects the objective of ensuring in future the necessary cash flow from the Textile segment for the expansion of the corporate activities in the other sectors. Outlook Thanks to the high order backlog the production capacities of several product groups are fully utilized up until the summer of 2001. This is true primarily for the spinning and embroidery machinery sectors. The order backlog of the Barmag Group is still remaining at a lower level, whereby a slight improvement appears possible. Together with the current plans for making the costs more flexible and thus to reduce them further, additional improvement in the result of the Textile segment is also expected.

43

MANAGEMENT’S DISCUSSION OF RESULTS

Results of the Components segment (CHF 000)

2000

%

1999

%

Sales

564 092

100.0

469 241

100.0

Cost of goods sold and operating expenses before amortization of goodwill Research and development

501 809

89.0

426 454

90.9

12 249

2.2

12 885

2.7

Operating profit before amortization of goodwill Amortization of goodwill

50 034 2 701

8.9 0.5

29 902 2 535

6.4 0.5

Operating profit

47 333

8.4

27 367

5.9

Depreciation and amortization

47 774

8.5

39 351

8.3

Operating cash flow

95 107

16.9

66 718

14.2

Order intake Order backlog

562 883 25 418

468 255 26 627

Capital expenditures Net assets Employees (year end)

62 217 333 794 2 857

60 886 319 564 2 626

Transmission Systems Surface Technology Other areas

333 345 223 179 7 568

271 157 190 711 7 373

Total

564 092

469 241

Sales development by division

The results of the Components segment continued to develop positively. A growth in sales of 20% was accompanied by a 73% improvement in the operating result. The gross margins could be improved thanks to reduced cost of goods sold. The major part of the capital expenditures were attributable to the transmissions technology sector in connection with new projects for the automobile industry. Transmissions Technology benefited above all from the newly launched projects in the prior years for the automobile industry. The sales of these new projects could more than compensate for the weak markets for agricultural vehicles and construction machinery. The new factory in India developed according to plan, manufacturing components for the local market and also supplying to the plants in Italy. The increase in sales of the Transmissions Technology sector amounted to 23 % whilst the operating profit rose overproportionally. Surface Technology was able to increase its sales by 17%. The operating profit improved at a substantially higher rate than sales but nevertheless did not meet the objectives. The production facility open-

44

ed in Thailand in the prior year for the manufacture of bimetallic barrels was able to establish itself successfully in the Asian markets. The operating cash flow of CHF 95 million increased by 43% in comparison with the prior year, whilst capital expenditures remained at the level of 1999. As a result the positive cash flow after capital expenditures in this sector amounted to CHF 33 million. Outlook In spite of the signs of stagnation or even declining developments in several vehicle markets, the opportunities for further growth are considered positive for the Transmissions Technology sector. An increase in sales as well as in profit is also expected in 2001. The objectives of the Surface Technology sector include further growth in 2001 in spite of the possible decline in the manufacturing of industrial products in North America. Furthermore an additional increase in profitability is expected thanks to the capital expenditures and restructuring undertaken in the past years.

MANAGEMENT’S DISCUSSION OF RESULTS

Financial and Group results (CHF 000) Financial income (expense) Tax expense Group profit (loss)

In the financial result the increase of net debt is reflected as a result of the acquisition of the Barmag/Neumag Group as well as the much lower income from securities in comparison with the prior year. In accordance with IAS 32 interest expense amounting to CHF 4.8 million was charged to the income statement for the 21/4% convertible bond whilst from this only an amount of CHF 2.6 million will be paid.

2000

1999

( 27 243) 22 143 72 799

5 156 18 694 ( 70 240)

The tax expenses are approximately at the same level as the prior year. Substantial tax loss carry forwards are available particularly in Germany, whilst in most of the other countries the usual charges were applied.

Balance sheet data (CHF 000) Net cash (debt) Total net working capital

31.12.2000

31.12.1999

( 280 318)

( 115 575)

268 462

279 740

255 176 13 286

279 740

(without liquidity and short-term debt)

Group companies without Barmag Group Barmag Group Interest bearing debt Convertible loan Other borrowings

204 583 217 909

373 753

Shareholders’ equity

722 493

652 110

Net debt increased by CHF 165 million mainly as a result of the acquisition of the Barmag / Neumag Group. The relevant acquisition prices amounted to CHF 425 million, so a positive cash flow of CHF 260 million was achieved in the year under report. This includes the liquidity purchased with the acquisitions in the amount of CHF 169 million, resulting in a cash flow of approximately CHF 91 million from operating and other activities.

During the course of the year under report, a 21/4% convertible bond in the amount of CHF 230 million was issued. It served in particular the financing of the acquisition of the Barmag / Neumag Group.

Cash flow (CHF 1000) Change in liquidity from operating activities Acquisition of participations Capital expenditures

The substantially improved course of business led to a considerable improvement in cash flow from operating activities. Following a liquidity deficit of CHF 15 million in the prior year, a positive funds flow of CHF 171 million resulted in the year under report. Distribution The Board of Directors proposes to the General Meeting of Shareholders a distribution of CHF 8 per share in the form of a capital reduc-

2000

1999

170 837 ( 246 423) ( 114 832)

( 14 545) ( 1 582) ( 101 207)

tion. The proposed distribution takes into consideration that the Company suffered a massive loss in the prior year, which could only be offset during the year under report. Share split The Board of Directors is proposing to the General Meeting of Shareholders a share split of 1:10. Following the capital repayment, the nominal value of the share will thereafter be reduced to CHF 12.50.

45

CONSOLIDATED INCOME STATEMENT

(CHF 000)

Note*

2000

%

1999

%

1

2 223 813 1 672 098

100.0 75.2

1 387 856 1 097 108

100.0 79.1

Gross profit

551 715

24.8

290 748

20.9

Selling and distribution Research and development Administration and other expenses

183 521 109 049 136 960

8.2 4.9 6.2

139 903 83 368 124 179

10.1 6.0 8.9

429 530

19.3

347 450

25.0

Sales Cost of goods sold

2

Total operating expenses Operating profit (loss) Financial income

3

122 185 ( 27 243)

5.5 ( 1.2)

( 56 702) 5 156

( 4.1) 0.4

Profit (loss) before taxes Taxes

4

94 942 22 143

4.3 1.0

( 51 546) 18 694

( 3.7) 1.3

16

72 799 ( 1 631)

3.3 ( 0.1)

( 70 240) ( 1 450)

( 5.0) ( 0.1)

71 168

3.2

( 71 690)

( 5.1)

Group profit (loss) Minority interests Net income (loss)

* For details see the notes to the consolidated financial statements, pages 52–60. These form an integral part of the consolidated financial statements.

Share statistics (CHF)

2000

1999

Earnings (loss) per share Diluted earnings (loss) per share

50.03 49.70

( 50.07) ( 50.07)

See note 6, page 54.

46

CONSOLIDATED BALANCE SHEET

Assets (CHF 000)

Note*

Cash Marketable securities Liquid assets Accounts receivable, trade Inventories Prepayments and accruals Other receivables

%

110 997 21 953 7 8 9

Current assets Financial assets Deferred taxes Property, plant and equipment Intangible assets

31.12.2000

10 4 11 12

132 427 352 8 66

%

232 371 21 201

950 772 810 682 044

6.5

988 258

48.3

38 47 676 294

31.12.1999

141 289 764 574

253 313 289 9 43

572 379 198 311 259

16.1

908 719

57.6

31 8 572 56

639 117 741 718

Non-current assets

1 056 768

51.7

669 215

42.4

Total assets

2 045 026

100.0

1 577 934

100.0

Liabilities Short-term debt Accounts payable, trade Accruals and deferred income Short-term provisions Other liabilities

13

Current liabilities Financial debt Long-term provisions Deferred taxes Pension liabilities

133 246 152 105 82

913 182 803 807 054

720 759 14 13 4 18

Medium and long-term liabilities Total liabilities

288 27 26 241

369 213 218 939 037

529 776 219 32 18 122

33.6

384 898 541 056

584 489

28.6

392 879

24.9

1 305 248

63.8

922 655

58.5

0.8

3 169

0.2

16

17 285

Share capital Group reserves Net income (loss) for the period

15

188 873 462 452 71 168

Tota liabilities and shareholders' equity

35.2

579 202 729 979

Minority interests

Shareholders' equity

154 131 125 71 47

189 427 534 373 ( 71 690)

722 493

35.4

652 110

41.3

2 045 026

100.0

1 577 934

100.0

* For details see the notes to the consolidated financial statements, pages 52–60. These form an integral part of the consolidated financial statements.

47

CONSOLIDATED STATEMENT OF CASH FLOW

(CHF 000)

Note*

2000

1999 ( 70 240) 93 462

(15 350)

72 799 113 388 (37 767) 170 837

(14 545)

(243 719) (1 660) (114 832) (4 394) (1 017) 12 647

( 1 445) ( 1 150) ( 101 207) ( 1 455) 97 671 8 516

(352 975)

930

(148 904) 224 579 ( 486) (7 567) 0

105 981 0 ( 1 076) ( 8 501) ( 26 231)

Net cash from (to) financing activities

67 622

70 173

Difference in currency translation

(6 858)

1 268

Net increase (decrease) in cash Cash as at January 1

(121 374) 232 371

57 826 174 545

Cash as at December 31

110 997

232 371

Interest income Interest payments Tax payments

10 242 (26 151) (15 904)

17 426 ( 17 173) 2 570

Cash flow from operating activities Group profit (loss) Depreciation and amortization Other non-cash items and changes in net working capital Cash flow – net cash from (to) operating activities Cash flow from investing activities Acquisition of participations Repayment of loans granted, net Capital expenditures Aditions to intangible assets Sale (purchase) of marketable securities Proceeds from the sale of property, plant and equipment

17

Net cash from (to) investing activities Cash flow from financing activities Increase (decrease) in interest bearing debt 21/4% convertible bond 2000–2005, net of costs Dividends paid to minority shareholders Change in own shares Capital repayment

14

* For details see the notes to the consolidated financial statements, pages 52–60. These form an integral part of the consolidated financial statements.

48

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(CHF 000) Balance as at 1.1.1999 Capital repayment Net loss Foreign currency translation Change in own shares

Share capital

Capital reserves

Foreign currency translation reserve

Retained earnings and net income for the period

215 540 ( 26 231)

263 637

( 4 553)

274 189 ( 71 690)

9 719 118

( 8 619)

Balance as at 31.12.1999 Net income 21/4% convertible bond 2000–2005 Foreign currency translation Change in own shares

189 427

255 018

( 554)

( 7 013)

Balance as at 31.12.2000

188 873

270 155

5 166

748 813 ( 26 231) ( 71 690) 9 719 ( 8 501)

202 499 71 168

652 110 71 168 22 150 ( 15 368) ( 7 567)

273 667

722 493

22 150 ( 15 368) ( 10 202)

Total

49

ACCOUNTING PRINCIPLES

Organization and business activity Saurer Ltd. is a corporation organized under the laws of Switzerland with legal domicile in Arbon. The main activities of the Textile segment are the development, manufacture and sale of textile systems and of the Components segment the development, manufacture and sale of transmission systems as well as the surface technology product lines. The Group operates worldwide. Organizational changes within the scope of consolidation During the current year Barmag AG and Neumag GmbH & Co. KG were included in the consolidation as from 1.5.2000 and 1.9.2000 respectively. BB Industrie Holding AG and Saurer AG merged in December. Schlafhorst Automation Systems Inc. (USA) and Vectron GmbH (D) were divested during the period under report. Principles for the consolidated financial statements General principles and accounting standards The consolidated financial statements are based on the financial statements of the individual Group companies which have been drawn up in accordance with standardized accounting principles. The accounts are based on the historical cost convention. The consolidated financial statements as well as the individual financial statements of all companies are presented in accordance with "International Accounting Standards" (IAS). Change in accounting principles During the year under report, the following new IAS regulations came into force: IAS 36 concerning impairment of assets, IAS 37 concerning provisions, contingent liabilities and contingent assets and IAS 38 concerning intangible assets. The implementation of these standards resulted in slight adjustments to the information presented. Customer prepayments are now deducted from the inventories and the interest on provisions for pensions will now be reported in interest expense. The prior year data has been adjusted accordingly for the last two items. Principles of consolidation Scope of consolidation The consolidated financial statements of Saurer Ltd. include all subsidiaries in which Saurer Ltd. directly or indirectly controls more than 50% of the votes and the share capital. Companies acquired during the year under report are included in the consolidation as from the date of acquisition. Companies, which for strategic considerations are divested or discontinued, are removed from the scope of consolidation and are included in the consolidated financial statements in accordance with the equity method. Participations of between 20% and 50% (associated companies), in which the Group exercises a decisive influence, are included in the consolidated financial statements in accordance with the equity method. Group receivables, payables and transactions have been eliminated. Levels of consolidation Specific consolidations have been undertaken for the Textile and Components segments, in order to show separate results for these business sectors. Full consolidation In the case of consolidated Group companies with minority interests, 100 % of all balance sheet and income statement items are included in the Group financial statements. The total of

50

the shares of third-party minority shareholders are shown separately in the balance sheet and income statement. Capital consolidation The capital consolidation is based on the Anglo-Saxon purchase method. The assets and liabilities of newly acquired subsidiaries are included at their fair values in the consolidated financial statements as from the date of acquisition. In the case of companies acquired during the current business year, the income earned prior to the acquisition is not included in the consolidated financial statements. Intercompany profits Profits resulting from intercompany sales are eliminated insofar as the products and services concerned were not delivered to third parties on the balance sheet date. Valuation and accounting principles Foreign currency translation Business transactions in foreign currencies are translated into the respective local currency at the exchange rate ruling on the day of transaction and accounts receivable and liabilities at the year-end balance sheet rate. The resulting profits and losses are included in the income statement. At year-end the balance sheets and income statements of foreign subsidiaries are translated into Swiss Francs at the year-end exchange rate, whilst the income statements are translated into Swiss Francs at annual average rates. Any difference arising thereon is not included in the income statement, but is shown in the statement of shareholders' equity. In the event of divestment of a subsidiary, the relative cumulative exchange rate differences from the sale are included in the income statement. Financial risk management Forward contracts are used to hedge against currency risks. Realized and unrealized profits as well as losses on foreign currency forward contracts are included in the corresponding profits and losses of the underlying business transactions. Foreign currency risks which arise from the translation of income statement and balance sheet items of foreign consolidated companies are not hedged. Interest The Group's liquidity is invested on a short-term basis. Interest exposures are not hedged. Credit risks Liquid funds are placed short-term with first-class banks. The credit risk pertaining to accounts receivable is limited by the wide spread of customers, both geographically and by business activity. Composition and valuation of balance sheet items Cash includes cash in hand, balances in postal and bank accounts, as well as short-term money market funds. Marketable securities are shown at year-end stock market or market value. Changes in value are included in the income statement. Accounts receivable, trade and other receivables are included at face value, less specific provisions where appropriate. Inventories Raw materials are valued at the lower of cost or market, using the weighted average cost method. Finished goods and work in process are valued at production cost reduced to net realizable value should this be lower than cost. For items of reduced salability and excess stocks the necessary provisions have been set up. Customer prepayments are deducted from this item.

ACCOUNTING PRINCIPLES

Financial assets are included at cost less provisions for permanent impairment of value. Property, plant and equipment is carried at purchase or production cost less appropriate depreciation. For impairments special depreciation is charged. Depreciation is provided for on a linear basis over the following periods:

Furniture, fittings and equipment EDP, office equipment Vehicles, tools Machinery Buildings: – exterior constructions – interior constructions

Years 5–12 3–7 4–6 6–10 30–60 12–25

Repair and maintenance costs are expensed directly to the income statement. Costs which give rise to an increase in value are capitalized and depreciated over the remaining useful life of the assets. Similarly, significant financing costs incurred in respect of the construction of property, plant and equipment are capitalized and depreciated over the life of the corresponding assets. Leased equipment Property, plant and equipment financed through long-term financial leasing contracts, and for which the Company bears the major risks (financial leasing), is capitalized and depreciated like other fixed assets. The cash value of the corresponding lease obligations is included as a liability under long-term liabilities. Rental costs for short-term operational leases are charged directly to the income statement. Operating leases are not included in the balance sheet; the corresponding obligations are fully reported in the notes. Goodwill includes the excess of the acquisition price of participations over the relative equity value and is amortized to the income statement over a maximum period of 20 years using the straight-line method. Amortization periods in excess of 5 years are only used in the case of strategic acquisitions where a sustainable expansion of market share can be expected. In the case of the purchase of a foreign company goodwill is converted and fixed in Swiss Francs at the time of acquisition. The amortization of goodwill is included in the administration and other expenses. Patents, licenses and trademarks are capitalized at cost and are written off over a maximum period of 10 years. Provisions are set up for present legal and constructive obligations as a result of past events. The amount of the provisions is based on the expected outflow of reserves which will be required to settle the obligation. Retirement benefits Saurer Group companies operate various plans for providing employees with retirement benefits, which conform to local circumstances and practice in the countries concerned. These include defined benefit and defined contribution plans, under which benefits are provided through separate funds, insurance plans or unfunded arrangements. For defined benefit plans, the amount charged to the income statement consists of current service cost which includes the normal cost of financing benefits in respect of

future years of service as well as net interest on the assets or obligations. Contributions to defined contribution pension schemes are charged to the income statement as incurred. For funded plans, plan assets are held separately from those of the Group in independently administered funds. The Group's liability to pay future retirement benefits is determined using the "projected unit credit method" in accordance with IAS 19 (revised), and is fully provided in the Group's balance sheet. All actuarial profits and losses insofar as they exceed 10% of the higher amount of the present value of the defined benefit obligation or the fair value of the plan assets shall be amortized over the average remaining period of employment. The additional costs incurred within the context of the retirement agreements shall be provided for at the time of the agreement. Employee stock options shall be issued at market prices and therefore no charge shall be made to the income statement at that time. On the exercise of the option, the difference between the exercise and market prices shall be charged to the capital reserves. Convertible bond The convertible bond includes a liability and an equity component. At the time of issue the equity component is booked directly to shareholders' equity. The difference between the liability and the nominal value will be treated as interest expense over the duration of the loan. Other assets and liabilities are reported at their nominal or market value. Share capital The share capital reported corresponds to the share capital of Saurer Ltd. after elimination of own shares. Composition of items in the income statement Sales Revenues from products sold or services rendered are stated without turnover or value added tax, net of allowances and are recognized on shipment. Research and development Research and development costs are charged to the income statement insofar as the conditions for capitalization in accordance with IAS 38 are not fulfilled. Only the costs for the development of new products and the further development of existing products are included. Taxes Liabilities for taxes on income are calculated and provided for irrespective of their maturity on the basis of the tax rates prevailing at the balance sheet date for the relative Group companies. Deferred taxes on differences between Group and tax valuations as well as eliminations with an effect on the income statement are accounted for in accordance with the liability method. Deferred tax credits and liabilities are offset insofar as this is legally permissible. Tax effects from tax loss carry forwards are taken into account if it can be reasonably expected that they will be realized. Provisions for non-recoverable withholding taxes are set up in respect of retained earnings at Group companies, as soon as a distribution of profits is planned.

51

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1

Segment information Saurer reports its financial results in two segments, consisting of the Textile segment which is active in the development and manufacturing of spinning and texturing systems, and the Components segment, which includes the development and manufacturing of transmission systems for vehicles as well as metallic surface coatings. The operating result is reported for each segment. The difference between the operating result and the net income is shown in the consolidated income statement. There are no significant sales transactions between the segments.

Textile Segment

Components Segment

1 659 721 96 800 1 488 069

564 092 12 249 504 510

2 223 813 109 049 1 992 579

Segment result

74 852

47 333

122 185

Capital expenditure Depreciation and amortization

52 615 65 614

62 217 47 774

114 832 113 388

1 449 302

554 532

3 343

708 770

220 738

11 241

2000 Sales Research and development Other operating costs

Segment assets Unallocated assets

Corporate and other

Consolidated total assets

Total

2 007 177 37 849 2 045 026

Segment liabilities Unallocated liabilities Consolidated total liabilities

940 749 364 499 1 305 248

1999 Sales Research and development Other operating costs Segment result Capital expenditure Depreciation and amortization Segment assets Unallocated assets

918 615 70 483 930 790

469 241 12 885 428 989

1 411

1 387 856 83 368 1 361 190

( 82 658)

27 367

( 1 411)

( 56 702)

40 321 54 029

60 886 39 351

82

101 207 93 462

813 014

511 614

1 704

Consolidated total assets

1 577 934

Segment liabilities Unallocated liabilities Consolidated total liabilities

446 040

192 050

7 748

645 838 276 817 922 655

2000

Europe

NAFTA

South America

Africa, Middle East

Far East, Asia

Total

Sales

757 313

592 531

111 005

299 258

463 706

2 223 813

1 434 861 92 425

477 620 9 240

7 241 113

125 304 13 054

2 045 026 114 832

Total assets Capital expenditures 1999

Total

Sales Total assets Capital expenditures

599 555

464 137

1 038 473 70 277

489 579 12 634

2 Administration and other expenses Administration expenses Goodwill amortization Other expenses Other income Administration and other expenses

52

1 326 332 251 602

53 601

97 788

172 775

1 387 856

49 882 18 296

1 577 934 101 207

2000

1999

136 891 11 423 26 166 ( 37 520)

127 316 12 687 0 ( 15 824)

136 960

124 179

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3 Net financial income

2000

1999

1 626 ( 787)

5 118 3 847

Total income from marketable securities Interest expense from 21/4% convertible bond 2000–2005 Interest expense from pension plans Other interest expense Interest income Income from participations Expenses from foreign exchange differences (net) Other financial income

839 ( 4 767) (12 294) (24 509) 13 972 1 292 ( 5 074) 3 298

8 965 0 (5 137) (17 160) 18 520 759 ( 3 911) 3 120

Total

(27 243)

5 156

Taxes on income Deferred taxes

21 899 ( 322)

14 676 1 743

Total taxes on income Capital and other taxes

21 577 566

16 419 2 275

Total

22 143

18 694

Income from marketable securities Realized capital gains Unrealized capital gains

4 Steuern

Using the maximum tax rate of 23.6 % at the Group's headquarter location (Saurer AG, Arbon, Switzerland) applied to the profit (loss) before tax of CHF 94.9 million (1999: CHF (51.5) million), an expected tax charge (relief) of CHF 22.4 million (1999: CHF (12.2) million) results. The effective tax charge differs from the expected tax charge for the following reasons:

Profit (loss) before taxes Maximum tax rate Expected tax charge (relief) Variance due to differing local tax rates

94 942 23.6% 22 406 ( 8 537)

( 51 546) 23.6% ( 12 165) ( 20 739)

Effect of expenses not accepted for tax (including amortization of goodwill) Prior year taxes Change the valuation of deferred taxes Effect of changes in tax rate Other influences

13 869 4 210 567 ( 8 512) 8 582 2 861

( 32 904) 3 120 283 48 058 0 ( 2 138)

21 577 22.7%

16 419

Effective tax charge Effective tax rate

Deferred tax assets and liabilities arise due to differences between the Group and tax valuations in the following balance sheet items:

31.12.00 Deferred assets Assets Accounts receivable, trade / tax credits Inventories Financial assets Property, plant and equipment Intangible assets

1 58 7 1 2

Liabilities Accounts payable, trade Other liabilities Provisions including pension liabilities Medium and long term liabilities

122 7 135 27 592 7 145

Deferred tax assets deriving from tax loss carry forwards Valuation allowances Offset of deferred tax assets and liabilities Total

968 735 919 624 795

31.12.99 Deferred liabilities 23 6 4 69

331 237 156 185 44

Deferred assets 2 51 6 2 1

Deferred liabilities

271 944 923 099 074

11 3 6 64

640 398 891 408 14

205 43 868 5 813 9 749

1 118 2 436 17 429 288

1 49 4 4

047 216 005 394

160 425 ( 92 312) ( 135 859)

0 0 ( 135 859)

169 524 ( 120 517) ( 126 472)

0 0 ( 126 472)

47 289

26 729

8 117

18 541

On the balance sheet date the Company had tax loss carry forwards totalling CHF 433 million (1999: CHF 349 million) with a tax value of CHF 160 million (1999: CHF 169 million). Of these CHF 12 million expire by the year 2003 and a further CHF 33 million by the year 2007. The remaining CHF 388 million may be utilized after 2007.

53

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

5 Supplementary notes to the income statement

2000

1999

Wages and salaries Social expenses and other personnel expense

570 720 143 982

429 495 114 747

Personnel expenses Cost of materials Depreciation and amortization

714 702 886 986 113 388

544 242 505 453 93 462

Net income (loss) attributable to shareholders Average number of ordinary shares Adjustment for share options

71 168 1 422 647 9 399

( 71 690) 1 431 722 0

Average number of shares outstanding for the calculation of diluted earnings

1 432 046

1 431 722

50.03 49.70

(50.07) (50.07)

6 Earnings per share

Earnings (loss) per share (CHF) Diluted earnings (loss) per share (CHF)

7 Liquid assets This item contains cash and marketable securities with a maturity of less than three months. The market securities are primarily equity investments in listed companies and are stated at market value.

8 Accounts receivable, trade

31.12.00

31.12.99

Total of which bills of exchange

427 772 15 714

313 379 30 187

177 077 193 776 137 419

126 660 62 055 132 763

508 272 ( 155 462)

321 478 ( 32 280)

352 810

289 198

9 Inventories Raw materials Work in process Finished goods Total Customer prepayments Total

10 Financial assets

54

Participations Loans Capitalized pension surplus (note 19) Other financial assets

8 9 14 6

440 224 000 477

Total

38 141

6 4 14 6

425 606 000 608

31 639

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11 Property, plant and equipment

31.12.00 Machinery and equipment

Land and buildings

Balance as at January 1 Additions Disposals Change in scope of consolidation Reclassifications Foreign currency translation

1 104 091 96 088 ( 74 438) 37 280

560 190 18 744 ( 5 598) 65 605

( 34 525)

Balance as at December 31

Original cost

31.12.99 Machinery and equipment

Land and buildings

1 036 404 96 182 ( 44 531)

552 646 5 025 ( 3 945)

( 15 612)

1 664 281 114 832 ( 80 036) 102 885 0 ( 50 137)

( 2 805) 18 841

2 805 3 659

1 589 050 101 207 ( 48 476) 0 0 22 500

1 128 496

623 329

1 751 825

1 104 091

560 190

1 664 281

807 385 88 977 ( 69 771) ( 8 833) ( 26 324)

284 155 11 483 ( 2 016) ( 4 949) ( 5 046)

1 091 540 100 460 ( 71 787) ( 13 782) ( 31 370)

770 304 69 477 ( 40 470)

273 837 9 827 ( 206)

8 074

697

1 044 141 79 304 ( 40 676) 0 8 771

791 434

283 627

1 075 061

807 385

284 155

1 091 540

337 062

339 702

676 764

296 706

276 035

572 741

Total

Total

Accumulated depreciation Balance as at January 1 Depreciation Disposals Change in scope of consolidation Foreign currency translation Balance as at December 31 Property, plant and equipment, net Balance as at December 31 Value of leased assets

3 179

6 286

1 743 538 1 011 386

1 382 749 815 209

Insured values Machinery and equipment Buildings

12 Intangible assets Original cost Balance as at January 1 Additions Disposals Change in scope of consolidation Foreign currency translation Balance as at December 31

Patents etc.

Goodwill

Total

Patents etc.

Goodwill

Total

10 158 4 394 ( 1 918) ( 1 480) ( 26)

93 589 247 473 ( 863)

103 747 251 867 ( 2 781) ( 1 480) ( 26)

9 497 1 455 ( 1 447)

93 988 97 ( 496)

103 485 1 552 ( 1 943) 0 653

11 128

340 199

351 327

10 158

93 589

103 747

7 710 1 505 ( 1 309) ( 1 474) ( 39)

39 319 11 423 ( 382)

47 029 12 928 ( 1 691) ( 1 474) ( 39)

7 233 1 471 ( 1 440)

27 128 12 687 ( 496)

34 361 14 158 ( 1 936) 0 446

6 393

50 360

56 753

7 710

39 319

47 029

4 735

289 839

294 574

2 448

54 270

56 718

653

Accumulated amortization Balance as at January 1 Amortization Disposals Change in scope of consolidation Foreign currency translation Balance as at December 31

446

Intangible assets, net Balance as at December 31

55

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13 Provisions Warranty costs

Restructuring

Other

Total

32 500

36 847 9 895

2 592 23 003

71 939 32 898

32 500 11 268 ( 16 905) ( 3 169) ( 1 527) 23 693

46 742 ( 16 615) ( 9 529) ( 989) 12 467

25 595 25 032 ( 34 645) ( 207) ( 836) 40 134

104 837 36 300 ( 68 165) ( 12 905) ( 3 352) 76 294

Balance as at December 31

45 860

32 076

55 073

133 009

Short-term provisions Long-term provisions

41 468 4 392

23 473 8 603

40 866 14 207

105 807 27 202

31.12.00

31.12.99

Secured loans Unsecured loans 21/4% convertible bond 2000–2005

25 600 58 396 204 583

50 832 168 552 0

Total

288 579

219 384

Short-term provisions Long-term provisions Balance as at January 1 Charge to income Usage Release Foreign currency translation Change in the scope of consolidation

Only large one-time projects are reported under restructuring. No new restructuring provisions had to be set up in the year under report.

14 Financial liabilities

Maturities

Bank loans

Mortgages

Other loans

Total

1 to 2 years 2 to 5 years After 5 years

37 450 11 427 666

4 399 12 418

13 450 208 090 679

55 299 231 935 1 345

81 703 135 217 2 464

Total

49 543

16 817

222 219

288 579

219 384

Euro USD GBP CHF Other currencies

106 639 72 632 193 233 602 9 426

156 83 2 114 17

Total

422 492

373 753

Financial liabilities (short and long-term) by currency 310 032 139 286 986

Conditions of the 21/4% convertible bond 2000–2005 in the amount of CHF 230 million: Each bond with a nominal value of CHF 5 000 can be converted from June 26, 2000 up to maturity on June 26, 2005 or at an earlier repayment date, free of charge into 3.968254 registered shares of Saurer Ltd. with a nominal value of CHF 133 each. The conversion price is CHF 1 260 per registered share. For fulfilment of the conversion right 182 540 registered shares of Saurer Ltd. with a nominal value of CHF 133 each have been reserved from conditional capital (resolution of the General Meeting of Shareholders of May 17, 2000). In accordance with IAS 32 the conversion right is valued separately and reported in shareholders' equity.

The convertible bond is reported as follows in the balance sheet: Nominal value Conversion right (equity component) after deduction of deferred taxes Deferred taxes

230 000 ( 22 150) ( 568)

Original valuation of the liability as at June 26, 2000 Costs and dues Interest expense (note 3) Interest to be paid (accrued)

207 282 ( 4 879) 4 767 ( 2 587)

Valuation of the liability as at December 31, 2000

204 583

There is no significant difference between the valuation of the liability in the balance sheet and the corresponding market value. The calculation of interest expense for the convertible bond is based on the effective market yield and the relative coupon of an equivalent loan without conversion right.

56

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15 Consolidated share capital

31.12.00

31.12.99

Share capital of Saurer Ltd. Elimination of own shares

205 219 ( 16 346)

205 219 ( 15 792)

188 873

189 427

Total

Details concerning the shareholders are shown on page 62. The shares outstanding are entitled to one vote each. Authorized capital, conditional capital See notes 3 and 4, page 70, notes to the financial statements of Saurer Ltd.

16 Minority interests Balance as at January 1 Minority share of group profit Dividends paid Purchase (sale) of minority participations Foreign currency translation

3169 1 631 ( 486) 12 950 21

4484 1 450 ( 1 076) ( 1 684) ( 5)

Balance as at December 31

17 285

3 169

379 196 162 073 (372 680)

0 0 0

168 589

0

Divestment proceeds (acquisition price) Of which paid in the year under report Less liquid assets

(413 719) (413 065) 167 158

0 0 0

Acquisition of consolidated participations Acquisition of minority participations

(245 907) ( 516)

0 (1 582)

Acquisition of participations Divestment of minority participations

(246 423) 2 704

(1 582) 137

Total cash flow

(243 719)

(1 445)

17 Acquisition/divestment of participations Consolidated participations Current assets Fixed assets Liabilities and deferred income Net assets

In 2000 Barmag AG and Neumag GmbH & Co. KG were acquired. Schlafhorst Automation Systems Inc. and Vectron GmbH were divested.

57

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

18 Retirement benefits

31.12.00

31.12.99

Pension schemes Other post-retirement benefits

192 765 49 214

97 417 24 639

Total

241 979

122 056

455 045 137 219 ( 459 666)

284 670 78 150 ( 336 869)

132 598 ( 7 203) 53 370

25 951 5 556 51 910

192 765 ( 14 000)

97 417 ( 14 000)

11 094 28 385 ( 20 236) 767 ( 2 122) 1 460

8 830 13 965 ( 12 856) 0 ( 2 060) 1 821

19 348

9 700

2 163

2 119

97 417

78 290 16 392

As restated Change in the scope of consolidation Exchange differences Total expense as above Employer's contributions Pensions paid from unfunded plans

97 417 97 461 ( 7 170) 19 348 ( 6 412) ( 7 879)

94 682 0 56 9 700 ( 3 265) ( 3 756)

Balance as at December 31

192 765

97 417

4.9% 5.1% 2.5% 1.8%

4.2% 4.0% 2.4% 1.5%

24 639 ( 1 808) 19 978 9 584 ( 3 179)

23 655 ( 105) 0 3 841 ( 2 752)

49 214

24 639

2000

1999

256

256

Development of the balance sheet obligations Present value of funded obligations Present value of unfunded obligations Fair value of plan assets Under (over) funding net Unrealized actuarial losses (profits) Pension surplus not capitalized Thereof included in long-term provisions Thereof included in financial assets The amounts recognized in the income statement are as follows: Current service cost Interest cost Expected net return on plan assets Amortization of funded status Employee contributions Increase in pension surplus not capitalized Total charged to income Service expenses for defined contribution plans Movement in the liability recognized in the balance sheet Balance as at January 1 Effect of adopting IAS 19 (revised)

Assumptions used in actuarial calculations (weighted average) Discount rate Expected return on plan assets Future salary increases Future pension increases Change in the provision for other post-retirement benefits Balance as at January 1 Exchange differences Change in the scope of consolidation Service cost Benefits paid Balance as at December 31

19 Remuneration of the Board of Directors The remuneration paid to the Board of Directors amounted to

58

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

20 Transactions with related parties There exists a program for employee stock options. The shares required to cover this program were purchased on the market. The conditional capital, which is also available for this program (note 4, page 70), has not been used to date. The options granted as at December 31, 2000 have exercise prices between CHF 340 and CHF 1 065. The exercise prices correspond to the market prices at the time of issue. The options are blocked for between 2 and 5 years and are valid for 5 to 6 years.

Employees

Board of Directors

Total

Options Options Options Options

outstanding as at 31.12.1998 granted exercised expired

38 010 9 030 ( 4 967) ( 325)

9 200 3 750

47 210 12 780 ( 4 967) ( 325)

Options Options Options Options

outstanding as at 31.12 1999 granted exercised expired

41 748 5 800 ( 2 615) ( 2 760)

12 950 2 850 ( 1 100)

54 698 8 650 ( 3 715) ( 2 760)

Options outstanding as at 31.12.2000

42 173

14 700

56 873

31.12.00

31.12.99

Discounted notes Guarantees in favor of third parties Others

874 28 704 0

1 360 36 718 236

Total

29 578

38 314

177 267 ( 7 113) 4 841

155 626 ( 10 248) 100

21 Contingent liabilities

22 Financial instruments Open forward foreign exchange contracts Contract value Negative market value Positive market value

Foreign forward currency transactions are used to hedge currency risks in accordance with Group guidelines. The contract value shows the volume (gross nominal value) of the hedging transactions open at the balance sheet date. The negative market value is the potential cost required to close the outstanding contracts at the balance sheet date. The positive market value represents the unrealized profit on hedging transactions on the balance sheet date and thus the maximum risk in the event that the other party to the contract should not fulfil its obligations. Hedging is undertaken exclusively through first class financial institutions. Otherwise, there are no significant variances between the valuation of the balance sheet items and fair market values. Included in the figures above are anticipatory hedge transactions intended to protect future cash flows. In connection with the anticipatory hedge transactions the company has bought and sold a number of foreign currency options whose economic values are reflected in the figures above.

23 Other financial obligations As at 31.12.2000 obligations for future capital expenditures amounted to CHF 18 172 (prior year CHF 11 343).

Future obligations from:

Due within: 1–2 years 2–5 years

after 5 years

Finance lease Operating lease Rental contracts

16 17 424 7 813

11 23 023 23 457

0 0 5 821

Total financial obligations

25 253

46 491

5 821

59

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

24 Pledged assets

31.12.00

31.12.99

Assets are pledged as follows: Fixed assets Inventories Other items of current assets

88 539 0 967

142 661 1 951 692

Total

89 506

145 304

Loans and other liabilities secured by pledged assets

25 600

58 129

25 Events subsequent to the balance sheet date There are no events to report which could have a significant influence on the business results following the balance sheet date.

26 Changes in the scope of consolidation See page 50, organizational changes within the scope of consolidation.

27 Currency rates applied Currency 100 1 1 100 100 1

60

DEM EURO USD ATS ITL GBP

2000

1999

Income statement

Balance sheet

Income statement

Balance sheet

79.762 1.560 1.690 11.337 0.081 2.560

78.228 1.530 1.630 11.119 0.079 2.470

81.807 1.600 1.500 11.628 0.083 2.430

81.807 1.600 1.590 11.628 0.083 2.580

REPORT OF THE GROUP AUDITORS

Report of the group auditors to the general meeting of the shareholders of Saurer Ltd., Arbon

As auditors of the group, we have audited the consolidated financial statements (income statement, balance sheet, statement of cash flows, statement of changes in equity and notes, on pages 46 to 60) of Saurer Ltd. for the year ended December 31, 2000. These consolidated financial statements are the responsibility of the board of directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence. Our audit was conducted in accordance with auditing standards promulgated by the Swiss profession and with the International Standards on Auditing issued by the International Federation of Accountants (IFAC), which require that an audit be planned and performed to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the consolidated financial statements. We have also assessed the accounting principles used, significant estimates made and the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements give a true and fair view of the financial position, the results of operations and the cash flows in accordance with the International Accounting Standards (IAS) and comply with Swiss law. We recommend that the consolidated financial statements submitted to you be approved.

PricewaterhouseCoopers AG

Urs Honegger

Manuela Hutter

St. Gallen, March 27, 2001

61

SUPPLEMENTARY INFORMATION – ORGANIZATION, SHAREHOLDERS, PARTICIPATIONS

Board of Directors Dr. R. Staub submitted his resignation on the date of the last General Meeting of Shareholders on May 17, 2000. R. Staub gave his full commitment to the Company and for several years was an experienced member of the Audit Committee. The Board of Directors expresses its sincere thanks to him for his services.

Participations in Barmag AG In November 1999 Saurer concluded an acquisition agreement with AGIV AG, Frankfurt (D) concerning the acquisition of a majority shareholding of 74.7% in Barmag AG, Remscheid (D). Following the closing Barmag AG has been consolidated since May 1, 2000.

Shareholders There are no restrictions either for Swiss or for nonSwiss investors with regard to registration in the share register. Similarly there are no limits regarding the number of shares eligible for voting rights to be registered, whereby, however, in accordance with the articles of incorporation, there is an obligation to report participations which exceed or fall below 5, 10, 25, 331/3, 50 and 662/3 percent respectively. In the event that a participation of 331/3% is attained, there is the further obligation to submit a public tender offer.

Purchase offer Barmag AG On September 19, 2000 the 100% subsidiary Tesys GmbH (D) submitted to the third party shareholders of Barmag AG a voluntary purchase offer at an acquisition price of € 20.50 per share. As at 31.12.2000 the shareholding situation was as follows: Tesys GmbH 93.5%, Schlafhorst AG 5.1%, third parties 1.4%.

As at the end of 2000 the following shareholders were registered :

Shareholders Individuals Corporate entities Own shares Shares in the process of transfer

Number of shares

Number of shareholders

9% 46% 8% 37%

87% 13% – –

According to information available to the Company, UBS Asset Management AG, Zurich (CH), holds a share of 7% in the share capital as well as in the votes. The Company does not know further shareholders with a share of more than 5%. Change of corporate names During the course of the year, the global market image of the surface technology unit was simplified. Within the framework of the new structure, the companies of the product group including bimetallic barrels, feed screws and nozzles, which were hitherto known under several names, were combined under the new name of Xaloy; the companies active in thin film coating technology were renamed as IonBond. These changes concerned in detail the following companies : Previous name Berna AG (Olten, CH) Bernex-Müller AG (Rorbas, CH) Bernex-Bimetall AG (Olten, CH) Multi-Arc. Inc. (Rockaway, NJ, USA)

62

New name Xaloy AG Xaloy Rorbas AG IonBond AG IonBond Inc.

Acquisition of Neumag GmbH & Co. KG In September 2000 Barmag AG acquired Neumag GmbH & Co. KG, Neumünster (D) from Babcock Borsig AG. The company has been consolidated since September 1, 2000. Acquisition of PLB (Poland) The acquisition of the gear production sector of the Polish agricultural machinery manufacturer Ursus, which was announced in September 2000, was not concluded since the situation following due diligence did not correspond to what had been expected. Sale of Schlafhorst Automation Systems Inc. and Vectron GmbH In September 2000 Schlafhorst Automation Systems Inc., New Holland, MI (USA) which was active in the manufacture of automated transport systems was sold to Engim (Belgium). Internal legal restructuring In December BB Industrie Holding AG (Schaffhausen) merged with Saurer Ltd. (Arbon), and Bernex Inc. (USA) merged with Schlafhorst Inc. (USA).

SHARE STATISTICS

Saurer registered share (CHF) Symbol SWX: SAUN, Security No. 226 881

2000

1999

1998

1997

1996

nom. CHF 133

nom. CHF 133

nom. CHF 150

nom. CHF 175

nom. CHF 190

1 543 000 205 219 000

1 543 000 205 219 000

1 543 000 231 450 000

1 543 000 270 025 000

1 543 000 293 170 000

000 000 000 000

125 000 16 625 000

125 000 18 750 000

125 000 21 875 000

125 000 23 750 000

300 000 39 900 000

125 000 16 625 000

125 000 18 750 000

125 000 21 875 000

– –

1 543 000

1 543 000

1 543 000

1 543 000

1 543 000

1 420 089

1 424 267

1 436 931

1 456 437

1 482 980

122 911

118 733

106 069

86 563

60 020

8

–

17

25

15

–

26 231 000

38 575 000

23 145 000

–

1 157 250 000

1 186 567 000

1 265 260 000

1 635 580 000

894 940 000

50.03 120.08

(50.07) (10.16)

58.70 92.99

87.57 119.58

34.63 83.67

507.85

455.47

519.19

508.45

492.43

1 140 700 750

893 622 769

1 720 600 820

1 198 572 1 060

588 440 580

Nominal share capital Number of shares Nominal share capital

Conditional capital* Number of shares (for convertible bond) Nominal value Number of shares (for stock option plans) Nominal value

300 39 900 125 16 625

Authorized capital* (for capital market transactions) Number of shares Nominal value

Shares issued (year end) Number of shares

Shares with rights to dividends (year end) Number of shares

Own shares (year end) Number of shares

Distributions (in respect of the financial year shown) Capital repayment per share (2000: proposal to the General Meeting of Shareholders)

Total distributions (shown for year of payment)

Stock market capitalization Year end

Key data per share Group result Cash flow (Net cash from operating activities)

Shareholders' equity

Stock market prices High Low Year end

* The total of new shares issued must not exceed 500 000. See also Notes 3, 4 and 5, page 70.

63

MULTIPLE YEAR COMPARISON

Income statement (CHF 000)

2000

1999

1998

1997

1996

Saurer Textile Systems Barmag Group

1 199 630 460 091

918 615

1 226 131

1 403 902

1 291 181

Total Textile segment

1 659 721

918 615

1 226 131

1 403 902

1 291 181

Transmission Systems Surface Technology Other sectors

333 345 223 179 7 568

271 157 190 711 7 373

296 081 191 918 13 669

304 414 152 607 14 536

246 630 117 948 15 344

Total Components segment

564 092

469 241

501 668

471 557

379 922

2 223 813

1 387 856

1 727 799

1 875 459

1 671 103

Gross profit Operating expense

551 715 429 530

290 748 347 450

429 333 348 277

456 965 331 326

367 068 305 606

Operating result

122 185

( 56 702)

81 056

125 639

61 462

74 852 47 333

( 82 658) 27 367

34 927 45 761

79 888 45 654

43 462 16 300

( 27 243)

5 156

20 976

25 148

( 1 632)

94 942 22 143 ( 1 631)

( 51 546) 18 694 ( 1 450)

102 032 15 193 ( 1 538)

150 787 18 056 ( 1 507)

59 830 10 183 1 117

71 168

( 71 690)

85 301

131 224

50 764

Sales

Total sales

of which Textile segment Components segment Net financial income (expense) Income (loss) before taxes Taxes Minority interests Net result

Operating cash flow (operating profit before depreciation and amortization) Textile segment Components segment

140 466 95 107

( 28 629) 66 718

83 255 81 336

127 224 76 395

93 225 42 354

113 388 5.1% 65 614 47 774

93 462 6.7% 54 029 39 351

83 959 4.9% 48 328 35 575

78 166 4.2% 47 336 30 741

75 922 4.5% 49 763 26 054

2 373 558 793 315

1 419 026 268 233

1 509 381 237 063

1 957 332 455 481

1 478 218 373 608

Depreciation and amortization Total as % of sales of which Textile segment Components segment

Order intake, order backlog Order intake Order backlog

64

MULTIPLE YEAR COMPARISON

Cash fow (CHF 000)

2000

1999

1998

1997

1996

Net cash from operating activities % of sales

170 837 7.7%

( 14 545) (1.0)%

135 126 7.8%

179 195 9.6%

122 635 7.3%

Capital expenditures

114 832

101 207

139 105

78 676

68 588

52 615 62 217

40 321 60 886

61 404 77 614

46 120 32 556

34 940 33 528

31.12.00

31.12.99

31.12.98

31.12.97

31.12.96

Liquid funds Accounts receivable, trade Inventories Prepayments and accruals, other receivables

132 427 352 74

253 313 289 52

289 294 288 50

308 330 292 46

362 294 283 54

Current assets

988 258

908 719

923 175

978 706

994 436

Financial assets, deferred taxes Property, plant and equipment Intangible assets

85 430 676 764 294 574

39 756 572 741 56 718

20 345 544 909 69 124

17 781 494 934 73 939

27 999 494 335 54 842

Non-current assets

1 056 768

669 215

634 378

586 654

577 176

Total assets

2 045 026

1 577 934

1 557 553

1 565 360

1 571 612

of which Textile segment Components segment

Balance sheet (CHF 000) Assets

950 772 810 726

572 379 198 570

570 058 914 633

725 912 827 242

503 152 516 265

Liabilities Short-term debt Accounts payable Provisions, accruals and deferred income Other liabilities

133 246 258 82

Current liabilities

720 759

529 776

573 885

537 812

565 528

Financial debt Provisions, deferred taxes

288 579 295 910

219 384 173 495

76 680 148 079

129 184 131 812

141 949 140 277

Long-term liabilities

584 489

392 879

224 759

260 996

282 226

Total liabilities Minority interests Shareholders’ equity

1 305 248 17 285 722 493

922 655 3 169 652 110

798 644 4 484 754 425

798 808 4 601 761 951

847 754 2 087 721 771

Total liabilities and shareholders’ equity

2 045 026

1 577 934

1 557 553

1 565 360

1 571 612

35.3%

41.3%

48.4%

48.7%

45.9%

Number of employees (year end)

11 219

7 774

8 319

8 711

8 329

of which Textile segment Components segment

8 346 2 857

5 134 2 626

5 691 2 615

6 026 2 672

6 130 2 154

of which Europe of which Switzerland NAFTA Asia

9 230 546 1 070 920

6 077 534 1 078 619

6 665 560 1 200 454

7 066 584 1 189 456

6 947 600 820 562

Personnel expenses (CHF 000)

2000

1999

1998

1997

1996

Wages and salaries Social security and other personnel expenses

570 720 143 982

429 495 114 747

447 696 118 164

440 484 117 004

413 850 108 894

Total

714 702

544 242

565 860

557 488

522 744

Equity financing ratio

913 182 610 054

154 131 197 47

369 213 157 037

181 117 196 78

290 438 603 554

73 154 226 83

419 407 683 303

148 127 209 80

793 002 686 047

Employees

65

SAURER LTD. – FINANCIAL REPORT.

Saurer Ltd. – Financial statements

Income statement

68

Balance sheet

69

Notes to the financial statements

70

Proposals to the General Meeting of Shareholders

72

Report of the statutory auditors

73

Directors, officers, auditors

74

Principal companies and participations

76

Addresses

78

67

SAURER LTD. – INCOME STATEMENT

Revenues (CHF) Revenues from operations Revenues from securities and participations Interest income Income from sale of participations Other income Merger profit Total revenues

Note

2000

1999

1*

1 570 040 10 904 675 119 856 1 740 122 59 689 548

4 367 152 4 550 553 0 1 833 099 0

74 024 241

10 750 804

Expenses Operating expense Administration expense Depreciation/write-downs Interest expense Taxes Other expenses Write-down of participations

524 571 5 333 157 722 19 638

Total expenses

26 948 091

4 789 867

Net income

47 076 150

5 960 937

* For details see notes to the financial statements, page 70.

68

877 518 855 295 527 019

415 69 1 845 500 1 959

707 326 020 077 737 0

SAURER LTD. – BALANCE SHEET

Assets (CHF)

Note

31.12.2000

31.12.1999

Liquid assets Marketable securities Current accounts receivable Third parties Group companies Accrued income

11 995 333 1 009 277

4 801 623 1 577 035

785 177 20 721 497 7 156 331

404 680 7 579 435 1 647 522

Current assets

41 667 615

16 010 295

384 993 140

154 373 871

4 142 654 363 091

2 379 459 715 260 021

Non-current assets

1 039 360 373

872 013 351

Total assets

1 081 027 988

888 023 646

Loans Group companies Participations Third parties Group companies

Liabilities Short-term liabilities Third parties Group companies Short-term provisions Accruals and deferred income

12 5 1 3

048 825 129 190

236 191 216 835

32 5 332 405 499

356 174 000 237

Current liabilities Loans 21/4% convertible bond 2000–2005 Third parties Group companies Provisions

22 193 478

6 268 767

230 000 000 0 171 550 584 74 724 030

0 100 000 000 171 547 103 74 724 030

Total liabilities

498 468 092

352 539 900

Share capital General legal reserves Reserve for own shares Unappropriated retained earnings

205 61 126 188

205 61 122 145

Shareholders' equity Total liabilities and shareholders' equity

2*

219 904 440 996

000 473 000 423

219 904 875 485

000 473 000 273

582 559 896

535 483 746

1 081 027 988

888 023 646

* For details see notes to the financial statements, page 70.

69

SAURER LTD. – NOTES TO THE FINANCIAL STATEMENTS

Explanation to the accounts SaurerGroup shareholders participate legally in Saurer Ltd., which controls the companies listed on pages 76/77. The consolidated financial statements are of primary importance economically. The statutory financial statements of Saurer Ltd. are in this context to be viewed as a supplement.

Notes (amounts in CHF) 1

Merger profit A book profit resulted from the merger in December 2000 between BB Industrie Holding AG (Schaffhausen) and Saurer AG (Arbon).

2

Development of equity Share capital

3

Balance as at 31.12.98 Repayment of nominal value Net income for the year 1999 Reserve for own shares

231 450 00 (26 231 000)

Balance as at 31.12.99 Net income for the year 2000 Reserve for own shares

205 219 000

Balance as at 31.12.2000

205 219 000

General reserves

Reserve for own shares

Unappropriated retained earnings

61 904 473

114 650 000

147 749 336

8 225 000

5 960 937 (8 225 000)

555 753 809 (26 231 000) 5 960 937 0

3 565 000

145 485 273 47 076 150 (3 565 000)

535 483 746 47 076 150 0

126 440 000

188 996 423

582 559 896

61 904 473

61 904 473

122 875 000

Total

Authorized capital The Board of Directors is authorized to increase up to May 17, 2002 the share capital through the issue of a maximum of 300 000 fully liberated registered shares with a nominal value of CHF 133 each up to the maximum amount of CHF 39 900 000. Increases through firm underwriting or in partial amounts are approved. The issue price, the period of the entitlement to dividends and the type of liberation or the contribution or underwriting in kind shall be determined by the Board of Directors. The Board of Directors is authorized to exclude the subscription right of the shareholders and to allocate them to third parties in the event of the use of shares for the purpose of the acquisition of companies, parts of companies or participations, for mergers and exchange of participations as well as in the case of a share placement for the financing of such transactions. Subscription rights not exercised shall be sold by the Board of Directors at market conditions.

4

Conditional capital The share capital of the Company shall be increased by the maximum amount of CHF 56 525 000 through the issue of 425 000 fully liberated registered shares with a nominal value of CHF 133 each, of which a) up to an amount of CHF 39 900 000 representing 300 000 registered shares with a nominal value of CHF 133 each will be allocated to the shareholders through the exercise of option and conversion rights, which will be granted in connection with loans or other bonds of the Company or of Group companies or through the exercise of option rights; b) up to an amount of CHF 16 625 000 representing 125 000 registered shares with a nominal value of CHF 133 each, which are granted to the employees of the Company or of Group companies as a result of the exercise of stock option rights. The subscription right of the shareholders is excluded.

5

Joint determination for approved and conditional capital The number of the new shares to be issued on the basis of Articles 6 and 7 of the Articles of Incorporation may not exceed a total of 500 000.

6

Contingent liabilities Guarantees

31.12.00

31.12.99

446 339 000

396 076 000

The guarantees were given almost exclusively in favor of SaurerGroup subsidiary companies.

70

SAURER LTD. – NOTES TO THE FINANCIAL STATEMENTS

7

Purchase and sale of own shares Number of registered shares

Movements at transaction values

Balance as at 31.12.1998 Purchase Sale Sale from employee options programs (at exercise prices)

106 069 22 226 ( 4 595) ( 4 967)

16 491 446 3 763 087 2 232 725

Balance as at 31.12.1999 Purchase Sale Sale from employee options programs (at exercise prices)

118 733 28 297 ( 21 339) ( 2 780)

28 937 577 20 917 010 1 184 597

Balance as at 31.12.2000

8

122 911

Significant shareholders Please refer to the information given on page 62.

9

Participations Please refer to the information given on pages 76/77.

10 Other notes No other reportable items are applicable.

71

SAURER LTD. – PROPOSAL TO THE GENERAL MEETING OF SHAREHOLDERS

Appropriation of profit (amounts in CHF) Profit brought forward Net income for the financial year 2000 Appropriation to reserve for own shares

145 485 273 47 076 150 (3 565 000)

Unappropriated retained earnings

188 996 423

The Board of Directors proposes to the General Meeting of Shareholders that the unappropriated retained earnings be carried forward for new account.

Capital repayment The Board of Directors proposes to the General Meeting of Shareholders of May 16, 2001 a reduction in the share capital from CHF 205 219 000 to CHF 192 875 000 through the repayment of CHF 8 per share. The capital repayment is not subject to the deduction of any capital investment taxes. The capital repayment shall be effected without cost on August 6, 2001 by the Company at the depository banks. Share certificates being held in custody privately should be sent to the Company including information of the account to which the remittance should be made. The Company will undertake the payment directly together with the exchange of the new certificates.

Share split The Board of Directors proposes to the General Meeting of Shareholders on May 16, 2001 a share split of 1:10. After the repayment of capital the new nominal value of the share will amount to CHF 12.50. The split will be made on August 6, 2001 at the same time as the capital repayment.

72

SAURER LTD. – REPORT OF THE STATUTORY AUDITORS

Report of the statutory auditors to the general meeting of the shareholders of Saurer Ltd., Arbon As statutory auditors, we have audited the accounting records and the financial statements (income statement, balance sheet and notes, on pages 68 to 72) of Saurer Ltd. for the year ended December 31, 2000. These financial statements are the responsibility of the board of directors. Our responsibility is to express an opinion on these financial statements, based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence. Our audit was conducted in accordance with auditing standards promulgated by the Swiss profession, which require that an audit be planned and performed to obtain reasonable assurance about whether the financial statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the financial statements. We have also assessed the accounting principles used, significant estimates made and the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accounting records and financial statements and the proposed appropriation of available earnings comply with Swiss law and the company's articles of incorporation. We recommend that the financial statements submitted to you be approved. PricewaterhouseCoopers AG

Urs Honegger

Manuela Hutter

St. Gallen, March 27, 2001

73

OFFICERS – BOARD OF DIRECTORS

BOARD OF DIRECTORS

Expiration of mandate

Prof. Dr. Manfred Timmermann

Chairman

2001

Prof. Dr. Giorgio Behr

Deputy Chairman

2001

Heinrich Fischer

Delegated Member

2001

Dr. Mohamad W. Khouja

Member

2001

Dr. Klaus Oesch

Member

2001

Ulrich Schmidt

Member

2001

Audit Committee

Dr. Mohamad W. Khouja (Chairman) Prof. Dr. Manfred Timmermann Dr. Klaus Oesch

74

OFFICERS – MANAGEMENT

(AS AT 1.3.2001)

MANAGEMENT Group Management

Group Directors

Heinrich Fischer

Chief Executive Officer

Klaus K. Moll

CEO Barmag Group

Ernst Kessler

Chief Financial Officer

Heinz Bachmann

CEO Saurer Textile Systems

Joseph Steiger

Corporate Development

Marcello Lamberto

CEO Graziano Trasmissioni

Ulrich Bellgardt

CEO Surface Technology

BARMAG GROUP Klaus K. Moll

Chairman of the Board of Management

Martin Stillger

Member of the Board of Management

Winfried Popp

Member of the Board of Management

Dr. Carsten Voigtländer, Dr. Joachim Brenk

Neumag GmbH & Co. KG

SAURER TEXTILE SYSTEMS Heinz Bachmann

Chief Executive Officer

Martin Börger

Controller

Spinning Systems John Cundill, Martin Börger, Stefan Kroß

W. Schlafhorst AG & Co.

John Cundill

Schlafhorst Autocoro GmbH

Stefan Kroß

Schlafhorst Winding Systems GmbH

Rolf Klingebiel

Parsys Produktionstechnik GmbH

Hagen B. Heitmann

Schlafhorst Parts Service GmbH

Heinz W. Kamp

Zinser Textilmaschinen GmbH

Petr Horak, Leo Franke

Elitex Cerven y´ Kostelec a.s.

Twisting Systems Dr. Dirk Burger

Director Twisting Systems

Rolf-Dieter Weber

Saurer-Allma GmbH

Gerhard Kempf

Hamel AG

Dr. Dirk Burger

Volkmann GmbH

Embroidery Systems Jürg Gygax

Saurer Embroidery Systems Inc.

Jürg Gygax

Saurer & Horeschy GmbH

Dr. Jürg Henz

Melco Industries Inc.

GRAZIANO TRASMISSIONI GROUP Dr. Marcello Lamberto

Chief Executive Officer

Dr. Gianni Sarti

Executive Vice President

SURFACE TECHNOLOGY Ulrich Bellgardt

Chief Executive Officer

Peter D. Flood

IonBond

Walter Cox

Xaloy

AUDITORS PricewaterhouseCoopers AG INVESTOR RELATIONS Dr. Carole Ackermann

Saurer Gruppe Management AG

75

PRINCIPAL COMPANIES AND PARTICIPATIONS

Currency

Share capital

Arbon, CH

CHF

205 219 000

Aktiengesellschaft Adolph Saurer

Arbon, CH

CHF

100 000

100

K

S.B. Holding Inc.

Panama, Rep. of Panama

*)

100

K

Saurer Group Investments Ltd.

George Town, Grand Cayman

CHF

77 118 600

100

K

Saurer Gruppe Management AG

Arbon, CH

CHF

100 000

100

K

Saurer Holding Inc.

Denver, CO, USA

USD

2 000 000

100

K

Tesys GmbH

Mönchengladbach, D

DEM

50 000

100

K

Group

Location

Saurer AG

% shareholding

Consolidation K

TEXTILE SEGMENT Barmag Group Barmag AG

Remscheid, D

DEM

66 703 000

99

K

American Barmag Corporation

Charlotte, NC, USA

USD

1 000 000

100

K

Barmag do Brasil Ltda.

Sao Leopoldo, Brasil

K

Barmag Far East Ltd.

Hongkong, China

Barmag India (Private) Ltd.

Mumbai, India

BRL

18 585 000

99

HKD

100 000

100

K

INR

50 000 000

100

K

Barmag-Spinnzwirn GmbH

Chemnitz, D

DEM

4 000 000

100

K

Shanghai Barmag Machinery Co. Ltd.

Shanghai, China

CNY

37 440 000

51

K

Wuxi Barmag Hongyuan Machinery Co. Ltd.

Wuxi, China

CNY

58 059 000

53

K

Neumag GmbH & Co. KG

Neumünster, D

DEM

9 779 000

100

K

Spinning Systems Elitex Cerven y´ Kostelec a.s.

Cerven y´ Kostelec, CZ

CZK

127 074 000

96

K

Schlafhorst Aktiengesellschaft

Mönchengladbach, D

DEM

500 000

49

Q

Schlafhorst Autocoro GmbH

Mönchengladbach, D

DEM

50 000

100

K

Schlafhorst Winding Systems GmbH

Mönchengladbach, D

DEM

50 000

100

K

Schlafhorst Parts Service GmbH

Mönchengladbach, D

DEM

50 000

100

K

Parsys GmbH

Mönchengladbach, D

DEM

50 000

100

K

Schlafhorst Asia Ltd.

Hong Kong, HK

HKD

275 000

100

K

Schlafhorst Electronics GmbH

Mönchengladbach, D

DEM

2 000 000

58

K

Schlafhorst Inc.

Charlotte, NC, USA

USD

3 000 000

100

K

W. Reiners Verwaltungs GmbH

Mönchengladbach, D

DEM

75 000 000

100

K K

W. Schlafhorst AG & Co.

Mönchengladbach, D

DEM

80 000 000

100

Texparts GmbH

Fellbach, D

DEM

50 000

100

K

Zinser Textilmaschinen GmbH

Ebersbach, D

DEM

34 000 000

100

K

Twisting Systems Hamel AG

Arbon, CH

CHF

2 000 000

100

K

Saurer Textile Systems Charlotte Inc.

Charlotte, NC, USA

USD

247 458

100

K

Saurer Textile Systems Far East Ltd.

Hong Kong, HK

HKD

250 000

100

K

Saurer-Allma GmbH

Kempten, D

DEM

19 000 000

100

K

Saurer Twisting Systems (Suzhou) Co. Ltd.

Jiangsu, China

CNY

14 906 000

100

K

Volkmann GmbH & Co.

Krefeld, D

DEM

10 000 000

100

K

Melco Industries Inc.

Denver, CO, USA

USD

2 407 000

100

K

Saurer & Horeschy GmbH

Lustenau, A

ATS

3 000 000

100

K

Embroidery Systems

Saurer (Japan) Co. Ltd.

Osaka, J

Saurer Sticksysteme AG

Arbon, CH

76

JPY

30 000 000

83

K

CHF

13 160 000

100

K

Function

PRINCIPAL COMPANIES AND PARTICIPATIONS

Components segment

Location

Currency

Share capital

% shareholding

Consolidation

Function

Transmission Systems Graziano Trasmissioni India Ltd.

New Dehli, IN

Graziano Trasmissioni North America Inc.

Duluth, GA, USA

Graziano Trasmissioni S.p.A.

Cascine Vica Rivoli, I

Graziano Trasmissioni UK Ltd.

Cambridge, GB

INR

157 550 090

100

K

USD

1

100

K

ITL

21 000 000 000

100

K

GBP

40 000

100

K K

Graziano Voith Transmissions S.p.A.

Cascine Vica Rivoli, I

ITL

2 400 000 000

100

I.T.T. S.r.l.

Cervere, I

ITL

5 000 000 000

100

K

OTR Trasmissioni S.p.A.

Bari, I

ITL

5 000 000 000

100

K

SAC Saurer Automotive Components B.V.

Rotterdam, NL

NLG

25 000 000

100

K

Surface Technology Xaloy AG

Olten, CH

CHF

3 000 000

100

K

IonBond AG

Olten, CH

CHF

850 000

100

K

Xaloy Rorbas AG

Rorbas, CH

CHF

500 000

100

K

Flametech Corporation

Newburyport, MA, USA

USD

5 000

100

K

IonBond Inc.

Madison Heights, MI, USA

USD

1

100

K

IonBond (UK) Ltd.

Consett, GB

GBP

1 150 000

100

K

Xaloy Inc.

Pulaski, VA, USA

USD

1 000

100

K

Xaloy Asia (Thailand) Ltd.

Chonburi, THA

THB

100 000 000

100

K

*) Shares without par value Consolidation: C = Fully consolidated P = Proportional consolidation

Financial companies Services Research and development Production Marketing and sales

77

ADDRESSES

Company

Address

Telephone/fax

Internet/e-Mail

Management

Saurer AG

Schlossgasse 2 CH-9320 Arbon

T +41 71 447 52 82 F +41 71 447 52 88

www.saurer.com [email protected]

Saurer Gruppe Management AG

Schlossgasse 2 CH-9320 Arbon

T +41 71 447 52 82 F +41 71 447 52 88

www.saurer.com [email protected]

Saurer Group Investments Ltd.

Campbell Corporate Services Ltd The Bank of Nova Scotia Building P.O. Box 268, George Town Grand Cayman, Cayman Island British West Indies

T F T F

Barmag AG

Leverkuser Strasse 65 D-42897 Remscheid

T +49 2191 67 0 F +49 2191 67 1204

www.barmag.com [email protected]

Klaus K. Moll Winfried Popp Martin Stillger

American Barmag Corporation

1101, Westinghouse Bvd. USA-Charlotte, NC 28273

T +1 704 588 0072 F +1 704 588 2047

www.barmag.com [email protected]

Mike Collins Hermann Rupprecht Herbert Voigt Bernd Ebert

Barmag do Brasil Ltda.

Av. São Borja No. 2266 BR-93032-000 São Leopoldo Rio Grando do Sul (RS), Brasil

T +55 51 588 1500 F +55 51 588 1363

www.barmag.com [email protected]

Heinz-Bodo Günther Klaus Riemann

Barmag Elektro CZ, spol. s.r.o.

Obornik 31 CZ-78901 Zabreh

T +420 648 412 838 F +420 648 412 838

www.barmag.com [email protected]

Josef Tempir

Barmag Far East Ltd.

Units 3806B–3807 38th Floor, Wu Chung House No. 213 Queen’s Road East PRC-Wanchai, Hong Kong, PR China

T +852 2827 4314 F +852 2827 5250

www.barmag.com [email protected]

Michael Hennig

Barmag GmbH Engineering & Manufacturing

Sumpfstrasse 3 CH-6300 Zug

T +41 41 748 80 12 F +41 41 748 80 19

www.barmag.com [email protected]

Klaus Karrasch

Barmag India (Pvt.) Ltd.

306–309 Dalamal Tower Nariman Point 400 021 Mumbai, India

T +91 22 2850 813 F +91 22 2044 322

www.barmag.com [email protected]

Khurshed M. Thanawalla

Barmag Spinning Company Liberec s.r.o.

U veze 8 CZ-46107 Liberec

T +420 48 24 278 41 F +420 48 24 278 45

Barmag Spinnzwirn GmbH

Zwickauer Strasse 247 D-09116 Chemnitz

T +49 371 2388 0 F +49 371 2388 349

www.barmag.com [email protected]

Jochen Krüpe

Neumag GmbH & Co. KG

Christianstrasse 168–170 D-24536 Neumünster

T +49 4321 305 0 F +49 4321 305 212

www.neumag.de

Dr. Carsten Voigtländer Dr. Joachim Brenk

Shanghai Barmag Machinery Co., Ltd.

687 Chang Zhong Road PRC-200 434 Shanghai, PR China

T +86 21 6531 4648 F +86 21 6531 4649

www.barmag.com [email protected]

Martin Schmeisser Zhou Yang

Wuxi Barmag Hongyuan Machinery Co., Ltd.

28 Sunjiang Road PRC-214062 Wuxi, Jiangsu Province, PR China

T +86 510 580 5288 F +86 510 586 1734

www.barmag.com [email protected]

Joachim Diezl Liu Chong Hui

Textilstrasse 2 CH-9320 Arbon

T +41 71 447 53 15 F +41 71 447 53 12

www.sts.saurer.com [email protected]

Heinz Bachmann

W. Schlafhorst AG & Co.

Blumenberger Strasse 143–145 D-41061 Mönchengladbach Postfach 100435 D-41004 Mönchengladbach

T +49 2161 28 0 F +49 2161 28 2645

www.schlafhorst.de [email protected]

Martin Börger John Cundill Stefan Kroß

Schlafhorst Autocoro GmbH

Blumenberger Strasse 143–145 D-41061 Mönchengladbach

T +49 2161 28 0 F +49 2161 28 2803

www.schlafhorst.de [email protected]

John Cundill

SAURER

+1 809 949 +1 809 949 +377 97 70 +377 97 70

2648 2648 36 82 36 81

BARMAG GROUP

Herbert Rönchen

SAURER TEXTILE SYSTEMS Saurer Textile Systems

Spinning Systems

78

ADDRESSES

Company

Address

Telephone/fax

Internet/e-Mail

Management

Schlafhorst Winding Systems GmbH

Carlstrasse 60 D-52531 Übach-Palenberg

T +49 2161 28 0 F +49 2161 28 5302

www.schlafhorst.de [email protected]

Stefan Kroß

Parsys Produktionstechnik GmbH

Blumenberger Strasse 143 –145 D-41061 Mönchengladbach

T +49 2161 28 0 F +49 2161 28 3028

www.schlafhorst.de [email protected]

Rolf Klingebiel

Schlafhorst Parts Service GmbH

Blumenberger Strasse 143–145 D-41061 Mönchengladbach

T +49 2161 28 0 F +49 2161 28 3388

www.schlafhorst.de [email protected]

Hagen B. Heitmann

Schlafhorst Electronics GmbH

Waldnieler Strasse 73 D-41068 Mönchengladbach

T +49 2161 28 0 F +49 2161 28 3575

www.schlafhorst.de [email protected]

Knut Richter Manfred Tillmann

Saurer Czech a.s.

CZ-54941 Cerven y´ Kostelec

T +420 441 46 95 00 F +420 441 46 95 02

www.elitex-saurer.cz [email protected]

Petr Horak Leo Franke

Schlafhorst Asia Ltd.

Units 3806B–3807 38th Floor, Wu Chung House No. 213 Queen’s Road East PRC-Wanchai, Hong Kong, PR China

T +852 2866 35 01 F +852 2861 27 15

[email protected]

Harald Fraessle

Schlafhorst Marketing Company Ltd.

Iyoti Studio’s Compound 1st Floor K.B.A. Irani Bridge Mumbai 400 007, India

T +91 22 386 03 50 F +91 22 387 84 39

[email protected]

Soumitri Mohan Sen

Schlafhorst Inc.

8801 South Boulevard P.O. Box 240828 USA-Charlotte, NC 28224

T +1 704 554 08 00 F +1 704 554 73 50

www.schlafhorst.com [email protected]

Dan Loftis

Schlafhorst Shanghai Repr.

Office Room 1405 New Town Center 83 Lou Shan Guan Road PRC-200336 Shanghai, PR China

T +86 21 6464 7707 F +86 21 6236 8029

[email protected]

Henri Wiggers

Schlafhorst de México S.A. de C.V. Av.

Sor Juana Inés de la Cruz No.14–7° piso Col. San Lorenzo C.P. MEX-54000 Tlalnapantla, Estado de México

T +52 5 565 6200 F +52 5 565 6305

[email protected]

Luis F. Mayoral

Schlafhorst de Colombia Ltda.

Calle 14 #30–144 COL-Barrio El Poblado/Medellin Colombia

T +57 4 268 6969 F +57 4 318 1855

[email protected]

Manuel Herrero Dominguez

Schlafhorst do Brasil Ltda.

Rua Domingos Afonso 460-térreo, Vila Santa Clara BR-03161-090 São Paulo-SP, Brasil

T +55 11 6101 2010 F +55 11 6916 6680

[email protected]

Günter Bammer

Zinser Textilmaschinen GmbH

Hans-Zinser-Strasse 1–3 D-73061 Ebersbach Postfach 1480 D-73058 Ebersbach

T +49 7163 14 0 F +49 7163 14 250

www.zinser-texma.com [email protected]

Heinz Wilhelm Kamp

S + G Industrieschreinerei GmbH

Bahnstrasse 9 D-41069 Mönchengladbach

T +49 2161 28 2827 F +49 2161 35 4555

[email protected]

Jakob Gielessen

Saurer-Allma GmbH

Leonhardstrasse 19 D-87437 Kempten Postfach 2580 D-87415 Kempten

T +49 831 688 0 F +49 831 688 320

www.allma.saurer.com [email protected]

Rolf-Dieter Weber

Hamel AG

Textilstrasse 2 CH-9320 Arbon

T +41 71 447 53 40 F +41 71 447 53 51

www.hamel.saurer.com [email protected]

Gerhard Kempf

Volkmann GmbH

Weeserweg 60 D-47804 Krefeld Postfach 102365 D-47723 Krefeld

T +49 2151 717 01 F +49 2151 717 478

www.volkmann.saurer.com [email protected]

Dr. Dirk Burger

Saurer Textile Systems Charlotte Inc.

4200 Performance Road USA-Charlotte, NC 28266

T +1 704 394 8111 F +1 704 393 1502

[email protected]

Helmut Leksa

Saurer Textile Systems Far East Ltd.

Units 3806B–3807 38th Floor, Wu Chung House No. 213 Queen’s Road East PRC-Wanchai, Hong Kong, PR China

T +852 286 603 08 F +852 286 605 09

[email protected]

Wolfgang Schoeffl

Saurer Twisting Systems (Suzhou) Co. Ltd.

No. 165 Jinjihu Road Suzhou Industrial Park PRC-215021 Jiangsu, PR China

T +86 512 763 0086 F +86 512 763 0586

[email protected]

Shen Wei

Twisting Systems

79

ADDRESSES

Company

Address

Telephone/fax

Internet/e-Mail

Management

Saurer Embroidery Systems Inc.

Textilstrasse 2 CH-9320 Arbon

T +41 71 447 51 11 F +41 71 447 54 11

www.embroidery.saurer.com [email protected]

Jürg Gygax

Melco Industries Inc.

1575 West, 124th Avenue USA-Denver, CO 80234

T +1 303 457 1234 F +1 303 252 0508

www.melco.com [email protected]

Dr. Jürg Henz

Saurer & Horeschy GmbH

Staldenweg 5a A-6890 Lustenau

T +43 5577 84 666 F +43 5577 84 66 63

[email protected]

Jürg Gygax

Saurer (Japan) Co. Ltd.

11–32, 3-Chome, Imamiya, Minoo-Shi 562-0033 JAP-Osaka-Fu, Japan

T +81 727 306 655 F +81 727 306 650

[email protected]

Akihiro Doike

Graziano Trasmissioni S.p.A.

Via Cumiana 14 I-10090 Cascine Vica Rivoli (TO)

T +39 011 957 01 F +39 011 959 4803

[email protected]

Dr. Marcello Lamberto

Graziano Trasmissioni UK Ltd.

9, Harley Industrial Park, Paxton Hill St. Neots-Huntingdon GB-Cambs PE19 6AT

T +44 1480 403 453 F +44 1480 403 454

[email protected]

Mike Finnigan

Graziano Trasmissioni North America Inc.

2222 Northmont Parkway, Suite 300 USA-Duluth, GA 30096

T +1 770 476 0496 F +1 770 623 3290

[email protected] Dave McPherson

Graziano Voith Transmissions S.p.A.

Via Cumiana 14 I-10090 Cascine Vica Rivoli (TO)

T +39 011 950 5011 F +39 011 957 4674

[email protected]

Dr. Gianni Sarti

Graziano Trasmissioni India Ltd.

Plot no. 14, Udyog Kendra Greater Noida, Gautam Budh Nagar Uttar Pradesh 201 304, India

T +91 118 456 3141 F +91 118 456 3146

[email protected]

Dr. Marcello Lamberto

I.T.T. S.r.l.

Frazione Grinzano I-12040 Cervere/Cuneo

T +39 0172 474 504 F +39 0172 474 601

[email protected]

Dr. Marcello Lamberto

Xaloy AG

Industriestrasse 211 CH-4600 Olten

T +41 62 287 87 87 F +41 62 287 87 88

www.xaloy.com [email protected]

Ulrich Bellgardt

IonBond AG

Industriestrasse 211 CH-4600 Olten

T +41 62 287 86 86 F +41 62 287 87 92

www.ionbond.com [email protected]

Ulrich Bellgardt

Xaloy AG Rorbas

Irchelstrasse 25 CH-8427 Rorbas

T +41 1 866 81 81 F +41 1 866 81 89

www.xaloy.com [email protected]

Ivo Schmid

IonBond Inc.

200 Roundhill Drive USA-Rockaway, NJ 07866

T +1 973 586 47 00 F +1 973 586 47 29

www.ionbond.com [email protected]

Peter D. Flood

IonBond Ltd.

Unit 36, No. 1 Industrial Estate Medomsley Road GB-Consett, Durham DH8 6TS

T +44 1 207 500 823 F +44 1 207 590 254

www.ionbond.com [email protected]

John Alan Stevenson

Xaloy Inc.

102 Xaloy Way USA-Pulaski, VA 24301

T +1 540 980 7560 F +1 540 980 5670

www.xaloy.com [email protected]

Walter Cox

Xaloy Inc./Flametech Corp.

104 Parker Street USA-Newburyport, MA 01950

T +1 978 462 31 63 F +1 978 465 63 60

www.xaloy.com [email protected]

Walter Cox

Xaloy Asia (Thailand) Ltd.

700/446 Moo Amata Nakorn Industrial Estate 4 Donhuaroh TH-Muang Chonburi 2000

T +66 38 717 084 F +66 38 458 177

www.xaloy.com [email protected]

Tom Farley

Embroidery Systems

TRANSMISSION SYSTEMS

SURFACE TECHNOLOGY

80