1999/690/EC: Commission Decision of 3 February 1999 on State aid which Germany is planning to introduce for Graphischer Maschinenbau GmbH, Berlin (notified under document number C(1999) 327) (Text with EEA relevance) (Only the German text is authentic)
Date: 1999-02-03
Institutions: European Commission
Subjects: Germany, State aid, aid system, control of State aid, printing, spare part

L 272/16

EN

Official Journal of the European Communities

22. 10. 1999

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 3 February 1999

on State aid which Germany is planning to introduce for Graphischer Maschinenbau GmbH, Berlin

(notified under document number C(1999) 327)

(Only the German text is authentic)

(Text with EEA relevance)

(1999/690/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

The Commission has received no comments from interested
parties.

Having regard to the Treaty establishing the European
Communities, and in particular
the first subparagraph of
Article 93(2) thereof,

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments
pursuant to those provisions,

Whereas:

1. Procedure

By letter dated 21 January 1998, Germany notified the
Commission of
restructuring aid for Graphischer Maschi-
nenbau GmbH, Berlin (GMB). By letters dated 17 March, 30
April and 18 June 1998,
it provided the Commission with
further information.

By letter dated 17 August 1998, the Commission informed
Germany that it had decided to initiate proceedings under
Article 93(2) of the EC Treaty in respect of the aid.

The Commission decision to initiate proceedings was published
the European Communities (1). The
in the Official
Journal of
Commission called on interested parties
their
comments on the aid.

to submit

2. Detailed description of the measures

the restructuring process amount

The Land of Berlin is offering restructuring aid to GMB in the
form of a grant of DEM 9,31 million (EUR 4,76 million)
spread over the period from 1998 to 2000. The estimated total
costs of
to DEM 22,93
million (EUR 11,72 million) and include measures relating to
skills, the restructuring of production layout and organisation,
a change in the product range and an increase in the vertical
range of manufacture as well as the losses so far incurred, and
those expected in the coming years.

GMB is a manufacturer of newspaper printing machinery parts
and is based in Berlin-Spandau (West), an area eligible for
regional assistance under Article 92(3)(c). The workforce
currently numbers 99 (as against 144 in 1996). GMB is a
subsidiary of Koenig & Bauer-Albert AG, Würzburg (KBA),
which is primarily a manufacturer of printing machinery. KBA
is a large firm within the meaning of the Commission recom-
mendation of 3 April 1996 concerning the definition of small
and medium-sized enterprises (2). For this reason, GMB must
also be deemed to be a large firm, since it does not meet the
independence criterion set out in Article 1(3) of the Annex to
the recommendation.

(1) OJ C 336, 4.11.1998, p. 13.

(2) OJ L 107, 30.4.1996, p. 4.

22. 10. 1999

EN

Official Journal of the European Communities

L 272/17

the

firm is

in difficulty. The

Figures such as the continuing downward trend in turnover
and the operating losses recorded in 1996 and 1997 show
clearly that
restructuring
programme drawn up by KBA on 24 February 1997,
completed on l September 1997, covers the period 1998 to
2000. During this period, the proposed measures are to lead to
optimum operating size,
improved organisation and lower
costs and, in particular, to the restructuring of GMB to enable
the KBA group itself to produce machine parts (roller bearers)
which had previously been procured from other firms. Since
GMB does not have its own development department, the
design and development of those parts are being handled by
the parent company in Würzburg. The granting of the restruc-
turing aid is, moreover, contingent on GMB's maintaining its
workforce at 99 employees until the year 2006.

KBA will contribute its own resources, amounting to a total of
DEM 12,25 million, to the restructuring plan, in the form of
the takeover of operating losses incurred by GMB in the past
and expected to be incurred in 1998 and 1999,
including
social plan expenditure for 1997, adjustment for inventory
clearance, and costs incurred during the partial closure in
1997. The restructuring measures are expected to decrease the
losses in 1998 and 1999, while a profit of DEM 520 000 is
expected for the year 2000. In addition, the above measures
should result in an increase in annual turnover to DEM 36
million as from 2000.

In its examination of the case on the basis of the notification,
the Commission had doubts as to the compatibility of the
proposed grant with the derogation provided for in Article
92(3) of the EC Treaty. At that stage of the investigation, it was
not evident whether the Community Guidelines on State aid
for rescuing and restructuring firms in difficulty (1) could be
applied to GMB, on the grounds that:

— the assumption that long-term viability can be restored is
not satisfactorily supported either by GMB's trial balance
sheets up to the year 2000 or by clear sales prospects in
the relevant sectors,

— the costs estimated by KBA in Würzburg for the develop-
ment of special machinery parts are very high and, meas-
ured against GMB's expected annual turnover as from the
year 2000, not justified,

— the parent company, KBA,

is primarily interested in
ensuring that the manufacture of special machinery parts is
carried out within the group itself, with the result that there
is no need to sell the know-how to GMB, which could
manufacture the new products as a licensee, as is usual
within a group,

— no evidence has been produced to show that the develop-
ment of new products is absolutely necessary for the
restructuring of GMB,

— the contribution of KBA, the parent company, consists
primarily in the taking-over of the losses incurred since
1996 until GMB reaches break-even point in the year 2000.

However, KBA is required to take over GMB's losses under
the existing control and profit-transfer agreement, which
means that
losses incurred before the notification and
already covered by KBA cannot be accepted as a contribu-
tion by KBA to GMB's restructuring.
the
planned restructuring grant of DEM 9,31 million is not in
proportion to the eligible costs and may not be of benefit
only to a firm in difficulty within the meaning of the
Guidelines on rescue and restructuring aid, but may also
benefit the parent company.

In addition,

3. Comments from Germany

By letter dated 25 September 1998, Germany submitted its
comments with regard to the grounds for initiating proceed-
ings.

Before the restructuring, the subsidiary company GMB served
as an extended workbench within the KBA group and its
different production sites in Frankenthal, Radebeul, Trennfeld,
and Kusel (2). None of the products was manufactured ex-
clusively in Berlin, but manufacture also took place at other
KBA production sites. This overlap in capacity within the KBA
group made GMB a crisis-prone company from 1993 onwards,
when demand in the printing machinery sector fell drastically.
Overstaffing,
led to rapidly
together with falling demand,
mounting losses which threatened GMB's viability. The parent
company, KBA, had already intended in November 1996 to
close GMB on 30 June 1997, but eventually decided to allow
part of the production plant in Berlin to continue to operate,
provided that state aid was made available.

(Rollenwechsler), cooling rollers

The focus of the restructuring plan is the establishment of the
ability within the KBA group to produce machinery parts
(roller bearers
(Kühlwalzen),
drawing rollers (Einzugswerke)). Those machinery parts are inde-
pendent modules of any web-offset press and represent less
than 10 % of the total price of the printing machinery. Roller
bearers, cooling rollers and drawing rollers would be in direct
competition with other firms' products, possibly including
those distributed by KBA.

A prerequisite for the plan's success is the supply of compet-
itive, economical and innovative products and their rapid intro-
duction on the market. Due to the current structure, GMB is
unable to develop such products on a short-term basis. Thus
the restructuring plan involves recourse to the development
and construction capacities of KBA in Würzburg, while future
modifications and adaptations would be carried out in Berlin.
However, Germany emphasises that the development activities
undertaken in Würzburg, in the absence of appropriate capa-
cities in Berlin, will benefit only GMB as an independent profit
centre and supplier for the abovementioned modules. As from
1999, GMB will manufacture only improved products and will
stop the manufacture of any products that were manufactured
before the restructuring of the company.

(1) OJ C 283, 19.9.1997, p. 2.

(2) KBA in figures, http://.kba-print.de

L 272/18

EN

Official Journal of the European Communities

22. 10. 1999

In addition to the previously presented preliminary profit and
loss accounts up to the year 2000, Germany provided as part
of the proceedings GMB's planned balance sheets from 1997
up to 2000. The figures in the planned balance sheets show a
slight decrease in the balance sheet and generally sound
finances.

To support
the assumptions, Germany presented market
studies for 1997, 1998, 1999 and 2000 on KBA and GMB's
shares of world-market turnover for web-offset presses for
newspapers, commercial web-offset presses, web-fed rotogra-
vure presses and roller bearers/web-offset presses. The figures
reveal a steady increase in GMB's turnover for roller bearers,
amounting to DEM 85 million in 1997, DEM 110 million in
1998, DEM 140 million in 1999 and DEM 160 million in the
year 2000. GMB's percentage share of the total production of
this product within KBA will rise from 61 % in 1997, to 74 %
in 1998, 87,5 % in 1999 and 90 % in 2000.

No sales forecast
is provided for the other two modules,
drawing rollers and cooling rollers, which GMB will continue
to manufacture and further develop at its own site.

of more

competitive

With regard to the estimate of DEM 6,075 million for the
products, Germany
development
considers
the Commission's doubts concerning the ratio
between cost and GMB's expected annual turnover of DEM 36
million as from the year 2000 to be unjustified. Experience
shows that the lifetime of newly developed products is usually
seven years. Expenditure has therefore to be spread over this
to an annual
period which would
burden of
lead
DEM 868 000. More against
the abovementioned expected
turnover in the year 2000, this would amount to 2,4 % a year,
or 3,5 % if the costs for analytical revision are added to the
above cost estimate. Such a ratio is considered extremely low
in the mechanical engineering industry.

Notwithstanding the ‘creation of new products’ previously
mentioned to the Commission, the activities carried out in
Würzburg do not meet
the definitions either of applied
research and development or of basic industrial research, laid
down in Annex I to the Community framework on state aid for
research and developments (1). The work is based on technical
knowledge available within KBA, focusing in particular on the
use of standard-sized rollers for paper rolls of different widths
as well as the use of new, economical and handy components.

The main point of the restructuring plan is the future indepen-
dent ability of GMB within the KBA group to produce roller
bearers, drawing rollers and cooling rollers. Expenditure in
relation to these newly designed products, in particular roller
bearers, is incurred exclusively for the benefit of GMB, which
will purchase the know-how from KBA. Germany considers
irrelevant
the question whether the know-how should be
purchased or the new products manufactured on a licensing
basis. It argues that, in the latter case, a licence fee would have
to be calculated that would cover all costs incurred during the
development and construction and take into account a realistic

(1) OJ C 45, 17.2.1996, p. 5.

lifetime for the products. Any doubts as to GMB's liquidity are
rejected on the grounds that the notified aid does not aim at
removing liquidity problems, but at facilitating the restruc-
turing of the company.

As regards KBA's contribution from own resources, and in
particular the taking-over of the losses incurred since 1996 and
1997, the control and profit-transfer agreement between KBA
and GMB requires the taking-over of GMB's losses. However,
the agreement does not specify any period of notice of
termination. Thus, as from the crisis meeting held in February
1996, KBA could have terminated the agreement immediately.
Furthermore, the entitlement to take over the losses arises at
the date of presentation of the balance sheet. The balance sheet
for the financial year 1996 was presented on 22 April 1997,
well after the establishment of the restructuring plan within the
framework of the ‘alliance for work’ (Bündnis für Arbeit) signed
in February 1997.

Germany considers that more importance should be attached
to the question of why and on what scale the company's losses
came about than to the question of the requirement that losses
be taken over. If GMB had been closed down on 30 June 1997,
as originally planned, with the resultant termination of the
control and profit-transfer agreement between KBA and GMB,
KBA would not have had to take over the total losses incurred
in 1996 and 1997, namely the costs of social measures and
closure. The bulk of the costs were due to the restructuring and
the outage period required by the conversion of the production
layout. Those costs exceed significantly those that would have
been incurred for the planned closing down of GMB on 30
June 1997 (2).

The assessment of the proposed aid of DEM 9,31 million for
GMB and whether it is proportional to the eligible costs should
take into account the contribution of the company from its
own resources as well as the specific situation of west Berlin.
Against the background of the decision to close down GMB
and in view of the significant restructuring costs, on the one
hand, and taking into account the specific regional situation of
west Berlin and in particular the situation in the manufacturing
industry, on the other, Germany considers that the contribu-
tion of KBA is in proportion to the restructuring costs. Further-
more, the proposed restructuring aid will not benefit KBA
itself. Without the promised grant of restructuring aid, GMB
would have closed down on 30 June 1997. Following the
decision to continue the business despite GMB's significant
losses, KBA took a considerable risk and took over costs
exceeding the amount of the restructuring aid. From KBA's
point of view, there was no need to preserve a small produc-
tion site in Berlin with special competence within the group.
Any production site within the KBA group would have been
able to establish the ability to manufacture the products in
question. Furthermore, the necessary expenditure would have
been significantly below the restructuring costs incurred for
GMB.

(2) The costs

incurred for partial closure amount

to DEM 2,518
million and social costs to DEM 1,500 million, according to the
balance sheet for 1997.

22. 10. 1999

EN

Official Journal of the European Communities

L 272/19

The security for the grant by a land charge amounting to
DEM 9,31 million is confirmed and the notarial record is
attached to the German letter as evidence.

good the damage caused by natural disasters, nor is it granted
to the economy of certain areas of the Federal Republic of
Germany affected by the division of Germany.

the proposed
According to the German communication,
restructuring aid may at most affect
trade marginally but
should not distort competition to an extent contrary to the
common interest. GMB will be by far the smallest supplier of
roller bearers. Other suppliers belong to international and
financially strong groups. The main competitor in the roller
bearer sector, Stork-Contiweb, is, via the Heidelberger Druck-
maschinen AG, a subsidiary of RWE. Another competitor, Vits
Maschinenbau GmbH, Langenfeld, is part of Deutsche Babcock
AG.

The granting of restructuring aid would allow GMB to operate
as a competent and competitive supplier on the market for
roller bearers, drawing rollers and cooling rollers. GMB's
market position would intensify the competition on the rele-
vant market, where there are no excess capacities. The notified
restructuring aid aims at restoring the viability of GMB and will
not create excess capacities, within either GMB or KBA.

4. Assessment of the aid

Restructuring aid for GMB is provided from state resources and
serves to keep in business a firm experiencing difficulties. It
could therefore have adverse effects on the position of compet-
itors from other Member states on the market for printing
is international, and Community
machinery. That market
for
manufacturers are in competition with one another
customers within and outside the Community. Consequently,
the state support may distort competition or threaten to distort
it and affect trade between Member states. The planned state
support therefore constitutes State aid within the meaning of
Article 92(1) of the EC Treaty because it enables the recipient
company to carry out restructuring without having to bear the
costs in full as any other firm in a normal market situation
would have to do.

The State aid is not covered under approved or existing aid
schemes and must therefore be notified individually pursuant
to Article 93(3) of the EC Treaty. Germany has complied with
this notification requirement.

Article 92(1) of the EC Treaty lays down the principle that aid
having the characteristics specified therein is incompatible with
the common market. Article 92(2) and (3) of the EC Treaty lists
exemptions under which aid may be found compatible with
the common market.

The exemptions provided for in Article 92(2) of the EC Treaty
do not apply since the aid is not aid having a social character
granted to individual consumers, nor does it serve to make

Similarly, the exemptions laid down in Article 92(3)(a) do not
apply, since the aid does not promote the economic develop-
ment of areas where the standard of living is abnormally low
or where there is serious underemployment. Nor can the
derogation provided for in Article 92(3)(b) apply, since the aid
is not intended to promote an important project of common
European interest or to remedy a serious disturbance in the
economy of a Member state. Nor does the derogation laid
down in Article 92(3)(d) apply, since the aid is not intended to
promote culture and heritage conservation.

Restructuring aid may be deemed compatible with the
common market only under the exemption provided for in
Article 92(3)(c)
if such aid can help to promote economic
activity without trade being affected in a way that runs counter
to the common interest, provided that the conditions set out in
the Community guidelines on State aid for rescuing and
restructuring firms in difficulty are met. In this context, the
application of the exemption must be examined on the basis of
the frameworks and guidelines in which the Commission set
out clearly its interpretation of the exemption in question.

The Community guidelines on State aid for rescuing and
restructuring firms in difficulty,
laying down the conditions
under which restructuring aid can be considered compatible
with the common market, are the applicable legal basis in the
present case. Under these guidelines, restructuring must take
place in the context of a feasible, coherent and far-reaching
plan to restore a firm's long-term viability within a reasonable
timescale on the basis of realistic assumptions as to its future
operating conditions. Restructuring plans take account,
inter
alia, of the circumstances giving rise to the company's diffi-
culty, market supply and demand for the relevant products as
well as their expected development and the specific strengths
and weaknesses of the company. They allow an orderly transi-
tion of the company to a new structure that gives it viable
to operate on the
long-term prospects and will enable it
strength of its own resources without requiring further state
assistance.

Restructuring usually involves the reorganisation and rationali-
sation of the firm's activities on to a more efficient basis
typically involving the withdrawal from activities that are no
longer viable or are already loss-making. In addition, those
existing activities should be restructured that can be made
competitive again and, possibly, new viable activities should be
developed or diversified into. Financial restructuring usually has
to accompany the physical restructuring.

L 272/20

EN

Official Journal of the European Communities

22. 10. 1999

the Community guidelines,

the
According to Section 3 of
Commission has to examine whether the restructuring meets
the following requirements: first, it must restore the long-term
the company within a reasonable timescale,
viability of
secondly,
in undue distortion of
competition, thirdly, the aid must be in proportion to the
restructuring costs and benefits, fourthly, the restructuring plan
must be fully implemented,
fifthly, detailed annual reports
must be submitted to the Commission in order to monitor the
implementation, progress and success of the restructuring plan.

the aid must not result

4.1. Restoration of long-term viability

By letter dated 21 January 1998, Germany submitted a restruc-
turing plan drawn up by KBA to keep GMB in business. By
letters dated 17 March and 30 April 1998, Germany completed
the notification providing in particular detailed preliminary
profit-and-loss accounts and the balance sheets for the financial
years 1996 and 1997. During the proceedings, Germany
submitted planned balance sheets from 1997 up to the year
2000. The restructuring plan takes account of the circum-
stances giving rise to the firm's difficulties, notably its unfav-
ourable operating size and cost-structure, unsound financial
position and the duplication of capacity within the KBA group
in relation to the range of products manufactured by GMB and
at other KBA production sites. The Commission notes at the
outset
the group is committed to implementing the
that
restructuring plan.

In order to adjust its coststructure, GMB had primarily to
reduce staff expenditure. Staff costs were almost 35 % of turn-
over in 1996. As a result of the partial closure in mid-1997, 45
jobs were cut and the workforce reduced from 144 to 99
employees. As provided for in the restructuring plan, GMB's
employees agreed to relinquish the contractual wage increase
of 1,5 % in 1997 and to accept wage cuts and the waiving of
welfare benefits under the ‘alliance for work’
für
Arbeit), leading to a cost reduction of DEM 150 000 per year
on a permanent basis. Comparing the profit-and-loss accounts
for 1996 and 1997, the cost reduction for staff represents in
total DEM 3,991 million or 33 %. According to the prelimi-
nary accounts, the costs will further decrease in 1998 and
1999 by DEM 1,148 million compared to 1997, while in
2000 they are expected to reach about the same level as in
1997.

(Bündnis

Cost reductions of approximately 10 % will also be achieved in
the field of assembly and engineering by optimisation of the
production process as well as constructive simplification.
Interest and miscellaneous costs are expected to decrease,
whereas the expenditure for material will be lowered by a
further 2 % through more favourable purchase prices. The
preliminary profit-and-loss accounts show, however, a steady
increase in this expenditure between 1997 and 2000 in line
with the expected increase in turnover. Accordingly,
the
restructuring will be to a large extent achieved by the already

implemented reduction in staff costs and improvements in the
production process.

The restructuring focuses on the supply of improved and in-
novative products and their rapid introduction on the market.
These products will exclusively be manufactured by GMB, thus
avoiding the current duplication of capacity within the KBA
group.

The restoration of the company's financial position is primarily
financed by the parent company through the taking-over of
GMB's losses incurred since 1996 until the company reaches
the break-even point to be expected in the year 2000. As from
that year, profits are forecast to rise to DEM 520 000.

forecast balance

sheets,
The Commission examined the
profit-and-loss accounts and cash-flow figures, which were
drawn up until 2000, to assess whether the restructuring meas-
ures would result in the restoration of GMB's viability. The
Commission notes that the forecasts were presented in detail
with statements on the underlying assumptions. The imple-
mentation of the restructuring concept required a completely
new factory layout geared to modern production conditions for
the three aggregates. Further productivity gains are expected
from the subsequent introduction of group work.

The Commission considers that
the decisive restructuring
measure is GMB's concentration on the manufacture of only
three machinery parts, namely roller-bearers, cooling rollers
and drawing rollers and, in particular, in the introduction of
the revised, more competitive roller-bearers for web-offset
presses and rotogravure presses, whose development is to be
undertaken by KBA. The Commission notes that loss-making
products will be abandoned. The distribution of the improved
machinery parts by the parent company, coupled with the
capacity reduction at other KBA production sites for these
parts, and their incorporation into KBA printing machinery,
offer GMB reliable sales potential.

According to Germany, the indispensable rapid marketing of
the innovative products can be achieved only with the help of
the development and construction capacities of KBA in Würz-
burg.

GMB expects an increase in turnover of 30,9 % in 1998,
15,8 % in 1999 and 4,7 % in 2000. The Commission notes
that the significant increase in turnover in 1998 compared
with 1997 is due to the losses incurred during the outage
period in 1997 when the conversion of the production layout
started.

The Commission considers these assumptions optimistic but
achievable. The Commission also notes that KBA provided a
detailed geographical breakdown of turnover for 1997, 1998,
1999 and 2000 in the business areas of KBA and GMB. The
Commission notes further that GMB's share within the KBA
group for improved roller bearers will rise steadily from 61 %
in 1997 to 90 % in 2000, resulting in a turnover increase from
DEM 85 million in 1997 to DEM 140 million in 2000.

22. 10. 1999

EN

Official Journal of the European Communities

L 272/21

GMB's balance sheet for 1997 as well as the forecast balance sheets up to the year 2000 still reveal a
positive equity capital amounting to DEM 6 million. However, the existing control and profit-transfer
agreement between KBA and GMB required the parent company to take over GMB's losses and therefore
allowed the equity capital to remain positive.

Apart from the cost for developing and improving the products to be manufactured by GMB, thus
establishing a manufacturing ability for these parts in Berlin, and other restructuring costs, neither the
restructuring programme nor the forecasts indicate that GMB plans significant investments until the year
2000. GMB should therefore be able to achieve a sound financial position in the year 2000.

The following tables summarise the most important aspects of the Commission analysis:

(in 1 000 DEM or EUR)

Profit and loss account

1997 (1)

1998

1999

2000

DEM

EUR

DEM

EUR

DEM

EUR

DEM

EUR

Turnover

Staff expenditure

Operating result

Profit/loss

22 691

11 602

29 700

15 185

34 400

17 588

36 000

18 407

7 968

4 074

6 820

– 2 744

– 1 403

– 1 383

– 2 839

– 1 452

– 1 484

3 487

– 707

– 759

6 820

– 76

– 176

3 487

7 400

3 784

39

90

620

520

317

266

(1) Budget year closed on 31 December 1997.

Balance sheet

1997 (1)

1998

1999

2000

DEM

EUR

DEM

EUR

DEM

EUR

DEM

EUR

Equity capital

Creditors

Balance sheet total

6 000

7 382

16 464

3 068

3 774

8 418

6 000

7 400

16 500

3 068

3 784

8 436

6 000

7 000

16 000

3 068

3 579

8 181

6 000

6 500

15 500

3 068

3 323

7 925

(in 1 000 DEM or EUR)

(1) Budget year closed on 31 December 1997.

The Commission takes the view that the forecasts show that
GMB has viable long-term prospects and is able to operate on
the strength of its own resources without requiring further
state assistance.

4.2. Avoidance of undue distortions of competition through the aid

The Commission examined whether measures have been taken
to offset adverse effects of the restructuring aid on the compet-
itors and whether the aid can be deemed eligible for exemption
pursuant to Article 92(3)(c). It has first to be noted that GMB is
based in Berlin-Spandau (west), an area eligible for regional
assistance under Article 92(3)(c).

The restructuring aid in form of a grant from the Berlin author-
ities may generate distortive market effects since GMB is still in
business.

a structural excess of production capacity in the relevant
market.

The market for printing machinery is closely linked to the
printing and publishing sector. This sector was growing until
the end of the 1980s, reached maturity and, since the begin-
ning of the 1990s, production has gradually slowed down. The
traditional
forms of reproduction also constitute a mature
market with modest growth potential. The sector is in a
process of constant restructuring because of the need to adapt
to information and telecommunication technology develop-
ments that threaten the prospects for the paper-based printing
industry. Apparent consumption and Community production,
expressed in current prices, increased by 67 to 68 % between
1985 and 1994. The growth in global consumption slowed
down in 1992 by about 1 % and dropped by 2,7 % in 1993,
although it rose again by 2 % in 1994. Production followed
similar trends, but the recovery in 1994 came to an end in
1995 and production has since then been stagnating (1).

The Commission reviewed the market data available and the
market report provided by Germany to assess whether there is

(1) Panorama of EU Industry, European Commission, Volume 2, 1997.

L 272/22

EN

Official Journal of the European Communities

22. 10. 1999

According to Germany, demand fell between 1993 and 1995
on the German market for printing machinery. The turnover of
the three main producers declined within this period by 13 %,
resulting in price decreases and substantial
job cuts of
2 500 employees (9,3 %). However, recent figures show that
production in this sector increased by 4,9 % in 1996 compared
with 1995, and by a further 11,2 % in 1997 compared with
1996. The capacity utilisation ratio in this sector was 89,1 % in
1996 and 89,4 % in June 1997 (1).

KBA's market forecasts for 1998 until the year 2000 assume a
steady growth of production in the relevant segments of the
world market. Furthermore, Germany reports that there is no
overcapacity on this market.

Pursuant to point 3.2(ii) of the Community guidelines on State
aid for rescuing and restructuring firms in difficulty,
the
restructuring plan must make a contribution, proportionate to
the amount of aid received, to the restructuring of the industry
serving the relevant market in the European Community by
irreversibly reducing or closing capacity. A reduction or closure
is irreversible when the relevant assets are scrapped, rendered
permanently incapable of producing at the previous rate, or
permanently converted to another use.

The Commission notes that the restructuring plan of GMB is
primarily based on a new, more efficient factory layout as well
as on a change in the range of products. The manufacturing
and assembling of parts of the existing products will either be
reduced or,
if they have been loss-making, abandoned. The
parts abandoned by GMB have been increasingly manufactured
at the parent company's production sites in Würzburg and
Frankenthal in order to increase their own capacity utilisation
ratio.

The Commission notes further that GMB will concentrate on
the manufacture of only three machinery parts, which will be
incorporated into KBA printing machinery, thus replacing, to a
large extent, products supplied by outside manufacturers, but
will still remain in competition with those suppliers. The
machinery parts in question are used in web-offset presses and
rotogravure presses and together represent less than 10 % of
the total value of a printing machine. KBA's market share in
these printing machinery segments amounted in 1997 to 9 %
and 20 % respectively of the world market.

The Commission takes note that no structural excess of
production capacities exists on the relevant market. Moreover,
the Commission notes that GMB has abandoned certain activ-
ities and has reduced its product range. In addition, the forecast
turnover for the improved products will grow at the same rate
as the world market sales prospects. The Commission also
takes acccount into account that GMB is the smallest supplier
of roller bearers and that other suppliers belong to inter-

In accordance with
national and financially strong groups.
point 3.2(ii) of the Community guidelines, where there is no
structural excess of production capacity in a relevant market in
the Community served by the recipient, the Commission does
not normally require a reduction of capacity in return for the
aid.

Accordingly, since there is no evidence of excess capacity, since
GMB's market shares are relatively small and since the produc-
tion of the products is redistributed within the KBA group and
therefore does not increase the capacity, the Commission does
not see any need for measures to be adopted to offset adverse
effects of the aid on competitors.

4.3. Aid in proportion to the restructuring costs and benefits

The Commission examined whether the aid was limited to the
minimum needed for the company's restructuring.

The Commission takes account of the fact that the restruc-
turing aid of DEM 9,31 million was accompanied by signi-
ficant contributions by KBA of DEM 12,25 million in order to
write off GMB's operating losses incurred since 1996 until
GMB reaches the break-even point in the year 2000.

First, the Commission summarised KBA's own-resources contri-
bution to the restructuring plan as follows: [...] (*).

As to the cost taken over by KBA as the company's own-
resources contribution to the restructuring plan, the Commis-
sion notes that the losses in 1996 and 1997 and the costs of
the partial closure in mid-1997, amounting to DEM 9,091
million, were incurred before the date of notification of the
restructuring aid, 21 January 1998.

Furthermore, the Commission would point out that, pursuant
to the existing control and profit-transfer agreement between
KBA and GMB, KBA is required to take over the losses incurred
by GMB. However, the Commission notes that the agreement
could have been cancelled by KBA after the crisis meeting in
February 1996, since it does not provide for any period of
notice of
in
November 1996 KBA proposed closing down GMB on 30 June
in which case the agreement would have been ter-
1997,
minated before the closure and GMB would not have been
entitled to take over the operating losses incurred in 1996 and
1997 or the costs arising from the closure.

termination. The Commission also notes that

The Commission has also takes note of the ‘alliance for work’
(Bündnis für Arbeit) signed in February 1997 on the basis of the
restructuring plan. Finally,
the Commission has taken into
consideration that the costs incurred in 1997 are caused by the
restructuring and the outage period due to the conversion of
the production layouts and range of products.

(1) VDMA (Verband Deutscher Maschinen- und Anlagenbau e. V.)

9.7.1998.

(*) Parts of this text have been edited to ensure that confidential infor-
mation is not disclosed; those parts are enclosed in square brackets
and marked with an asterisk.

22. 10. 1999

EN

Official Journal of the European Communities

L 272/23

In view of the fact that there was no actual obligation on KBA to take over the operating losses incurred in
1996 (1) and 1997 and taking into account the fact that the restructuring costs exceed the costs which
would have been incurred for the planned closing-down of GMB, the Commission considers that KBA
contributed DEM 12,25 million to the restructuring of GMB.

The following table summarises the total amount of contributions to the restructuring:

Contribution to the restructuring

in 1 000 DEM

in 1 000 EUR

%

1. Grant of the Land of Berlin = total State aid

2. Total contribution of KBA

3. Contribution GMB/KBA

9 310

12 250

1 370

4 760

6 260

40,6

53,4

6,0

Total 1 + 2 + 3

22 930

11 720

100

Secondly,
estimated restructuring costs, which is summarised in the following table:

the Commission compared the company's contribution from its own resources with the

Estimated costs (in 1 000 DEM)

[…] *

Würzburg

[…] *

Berlin

[…] *

Total

[…] *

(in 1 000 DEM)

Total (1 + 2)

4 875

18 055

22 930

The Commission notes that the total costs for restructuring the company amount to DEM 22,93 million
(EUR 11,72 million), including DEM 12,25 million to cover the operating losses, social-plan costs and
adjustment costs taken over by KBA, and DEM 10,68 million for the introduction of improved products
and the new factory layout. The Commission also takes note of the costs for the design and development of
the new products as well as analytical improvement for existing products that were incurred in both
Würzburg and Berlin. Finally, the Commission notes that the parent company will sell the know-how for
the innovative products, designed and developed in Würzburg for their exclusive manufacture in Berlin, to
GMB. In this context, the Commission also takes into consideration the fact that neither the definition of
applied research and development nor that of basic industrial research laid down in Annex I to the
Community framework on state aid for research and development is applicable to the activities carried out
in Würzburg.

The Commission also takes note of the detailed cost breakdown and of the detailed technical description
and data relating to the activities carried out in Würzburg, attached to the German comments. The
Commission also notes that the expenditure for the development of the new products is spread over a
lifetime of seven years, as is usual in mechanical engineering manufacturing, giving an annual burden of
DEM 868 000 and, measured against the expected turnover of DEM 36 million in 2000, a share of 2,4 %
per year. The Commission takes into account Germany's assurance that the parent company's activities
amounting to 15 000 man/hours at DEM 175 (DEM 2,625 million) for the development and a further
DEM 500 for the production of the prototype of the roller-bearer (web-offset presses) and to 10 000
man/hours at DEM 175 (DEM 1,75 million) for the revision and standardising of the roller bearer
(rotogravure presses) will benefit GMB alone.

Germany did not provide an exact timetable to show whether the development costs occurred after the
notification of the restructuring aid. However, the Commission has noted that the improved roller-bearer
(Type ‘Pastomat RC’) has been mass-produced by GMB since the end of 1997, resulting in a first
commercial success for the restructuring plan. It can therefore be concluded that a significant part of the
development expenditure had already taken place before January 1998.

Furthermore, approximately 80 % of the costs for design and development of the new products were
incurred in the parent company's development and construction facilities in Wurzburg (and Frankenthal
according to the communication of 25 September 1998). It has to be noted that neither Würzburg nor
Frankenthal is located in areas eligible for regional assistance pursuant to Article 92(3)(c). The Commission

(1) The balance sheet for 1996 was, as usual, presented in April
in February 1997 on the basis of the restructuring plan.

work’

(1997),

i.e., after the conclusion of the ‘alliance for

L 272/24

EN

Official Journal of the European Communities

22. 10. 1999

notes that GMB's capacities would not have allowed for developing, on a short-term basis, the requisite
competitive and innovative products and that GMB therefore had to have recourse to KBA's capacities.
However, the Commission considers that the parent company was, in any case, interested in supplying
improved machinery parts to be incorporated into its printing machinery. Therefore, the development costs
of DEM 4,875 million incurred in Würzburg/Frankenthal, and already to a large extent disbursed before
the notification, may be assumed to have benefited the KBA group, although the improved machinery is
manufactured by GMB, thereby providing GMB with its own area of competence within the KBA group.
Finally, the Commission would point out that the purchase price to be paid by GMB for the know-how in
these products, which according to Germany has been ‘calculated in order to cover all costs incurred during
development and construction’, will to a certain extent offset KBA's development costs.

The following table summarises the total eligible costs, the amount of contributions from the company's
own resources and compares the costs eligible for restructuring aid against the amount of State aid:

Cost/Contribution

Measure

in 1 000 DEM

Contribution
in %

1. Costs

Restructuring costs incurred in Berlin

Taking over of
adjustment for inventory clearing

losses, partial-closure costs,

Total eligible cost

2. Contribution

Total own resources

KBA

GMB/KBA

3. State aid

Development
to
deducted from State aid

costs

be

Eligible State aid amount

5 805

12 250

32

68

18 055

100

12 250

1 370

13 620

9 310

4 875

4 435

75}

52}

27

25

Taking into account the above calculations, GMB would evidently receive an amount of DEM 22,93
million, including DEM 13,62 million from own resources and DEM 9,31 million from public resources.
In order to keep the contributions to the minimum needed for the company's restructuring, the proposed
state aid of DEM 9,31 million should be reduced by the development costs amounting to DEM 4,875
million, that is to say, by the amount by which the eligible restructuring costs of DEM 18,055 million are
exceeded. The viability of GMB will not be affected by this reduction since the costs have to a large extent
already been incurred and since KBA, which is not a firm in difficulty, is the main beneficiary of the
activities carried out at its own production site. The measure does not therefore provide any additional
incentive, whereas the abovementioned costs are independent from the restructuring of GMB itself and the
measure serves the restructuring of the KBA group.

Accordingly, the Commission considers only the amount of DEM 4,435 million to be the minimum
needed and in proportion to the eligible restructuring costs of DEM 18,055 million and to the contribution
from own resources of DEM 13,62 million.

4.4. Full

implementation of the restructuring plan and observance of conditions

According to point 3.2(iv) of the Community guidelines, the restructuring plan submitted to the Commis-
sion must be fully implemented by the aid recipient who must also discharge any other obligations laid
down by the Commission decision.

22. 10. 1999

EN

Official Journal of the European Communities

L 272/25

The Commission notes that the restructuring aid is granted for
a period of three years (1998 to 2000) and that payments will
be spread over this period. The Commission further notes that
the proposed grant will have to be reimbursed in the event that
the restructuring measures are not
fully implemented. The
Commission has also noted that GMB is bound by a collateral
security amounting to DEM 9,31 million according to the
notarial act referenced No 568/1997 of 13 November 1997.

4.5. Monitoring and annual report

The Commission has taken note that Germany will provide the
Commission with an annual report.

5. Conclusions

Germany notified the proposed State aid according to Article
93(3) of the EC Treaty and therefore complied with its obliga-
tion to notify individually in the absence of an approved aid
scheme. The Commission also notes that it is the first time that
GMB, a company in difficulty, has applied for restructuring aid.

The Commission takes into account that the State aid in the
form of a grant partly meets the conditions laid down in the
Community guidelines for firms in difficulty, notably in that
the restructuring aid restores the long-term viability of the
company within a reasonable timescale and avoids undue
distortion of competition. However, the aid is not within the
minimum needed for the company's restructuring in that the
proposed grant exceeds the eligible costs by DEM 4,875
that only a grant
million. The Commission considers
amounting to DEM 4,435 million rather
than DEM 9,31
million complies with the requirements laid down in point
3.2.(iii) of the Community guidelines on State aid for rescuing
and restructuring firms in difficulty.

The Commission has concluded that the State aid measures
contribute to the development of certain activities that do not
adversely affect trading conditions to an extent contrary to the
common interest. The aid is therefore compatible with the
common market to the extent of the amount specified.

Consequently, Germany is authorised to provide aid amounting
to DEM 4,435 million (EUR 2,268 million) to GMB,

HAS ADOPTED THIS DECISION:

Article 1

The State aid which Germany is planning to grant to Graph-
in the form of a grant
ischer Maschinenbau GmbH, Berlin,
is compatible with the
amounting to DEM 9,31 million,
common market within the meaning of Article 92(3)(c) of the
EC Treaty and Article 61(3)(c) of the EEA Agreement only to
the extent of DEM 4,435 million.

The amount of planned aid in excess of DEM 4,435 million
may not be granted.

Article 2

Germany shall provide the Commission with detailed annual
reports in order to demonstrate the due implementation of the
restructuring plan.

Article 3

Germany shall inform the Commission, within two months of
notification of this Decision, of the measures taken to comply
with it.

This Decision is addressed to the Federal Republic of Germany.

Article 4

Done at Brussels, 3 February 1999.

For the Commission

Karel VAN MIERT

Member of the Commission