Result in Automotive Systems
(1)-Although vehicle output was lower in both its main markets-Western Europe and North America-the Automotive Systems Division posted higher sales revenues in 2006. Sales by the division rose by a total of 7% to 2,179.2 million CHF.
-The sales growth of the Automotive Systems Division was almost entirely organic. The strategically important acquisition of Rieter Automotive India made little impact, contributing 2 million CHF to total sales. Sales trends diverged in the division's two main markets. Automotive Systems achieved growth in Western Europe, although the trend in overall vehicle output there, especially by the French manufacturers, was negative. The positive sales trend was based on the market success of numerous new models, e.g. of Italian brands. Higher-than-average tooling sales to automobile manufacturers also contributed to growth in 2006.
By contrast, sales by the division in North America were slightly lower. due mainly to the decline in output by US manufacturers. Large customers of Automotive Systems reduced vehicle production at short notice in the second half of the year in order to wind down high inventory levels at dealers, High fuel prices and thus also lower demand for pick-ups and heavy off-road vehicles were significant contributory factors. The Company was unable to offset this decline entirely with deliveries to the Japanese manufacturers, Output growth by Japanese manufacturers in North America also eased slightly overall, and major delivery programs by the Company only came successfully on stream in the autumn.

(2)
EBIT did not develop in line with sales in 2006. After rising in the first six months it declined sharply in the second half of the year. This outcome was attributable to several factors. On the other hand the cost of energy and materials, which turned out higher than expected in Europe and North America, depressed the operating result. In contrast to the previous year, in 2006 customers were unwilling to accept price rises which would have been necessary by virtue of higher cost of energy and materials. These increases mainly affected aluminum and oil-based products, such as manmade fibers, polyurethane foam and asphalt, which the Company uses in its manufacturing operations. As the same time, a number of challenging model startups also generated additional expenditure. Furthermore, plant closures and last-minute interruptions to production at the US manufacturers as well as declining output volumes in major markets such as France also depressed the operating result.


Expansion in Asia
-The Company expects future growth in the industry to take place principally in the emerging markets of Asia and Eastern Europe. The division is expanding its activities in these regions and supports its customers in the new markets and at the same time benefits from the advantages offered by countries with lower labor costs.

China:
- The plant in the southern Chinese province of Guangdong doubled its production capacity.
- The Company commenced production in a new plant in Tianjin, northern China.
The Company operates both manufacturing facilities together with its japanese joint venture partner Nittoku to supply Japanese automobile manufacturers in China.

-The Company proceeded with the commissioning of a wholly owned manufacturing plant in Chongqing, central China, which will commerce production in mid 2007.

-In Shanghai the Company has sales and development team and a center for conducting automotive acoustic analysis and simulation.

India:
- The Company increased it holding in its former licensee Unikeller India, based in Behror, Rajasthan, from 35% to 100% in April 2006.
The Company will expand production capacity in India and plants to widen the product range.
From Behror in the Greater Delhi region the Company can efficiently serve about one-third of the total Indian automobile market.

Thailand:
The Company serves the manufacturers operating in Thailand through a joint venture with the Korean manufacturers, who are operating successfully in Asia, North America and Europe.

Acquisitions
The Company increased its market presence in Asia through two acquisition in 2006:
-The Company acquired a 51% interest in the Chinese automotive supplier Tianjin Rieter Nittoku Automotive Sound-proof Co., Ltd. as of January, 2006. The plant, which is operated jointly with Japanese partner Nittoku, has some 120 employees and generated sales of around 5 million CHF in 2006.

-In April 2006, the Company raised its holding in the Indian automotive supplier Rieter Automotive India Pvt. Ltd. (formerly Unikeller India Pvt.Ltd.) to 100%. Previously, the Company had held 35% in this Indian supplier of damping products.Rieter Automotive India has some 80 employees and generated sales of around 2 million CHF in 2006.

Action to enhance profitability
“Roadmap to Profitable Growth” Program
-"Roadmap to Profitable Growth" program, launched in 2003 continued in 2006. In addition to cost-cutting program in procurement and production and a reduction of fixed costs, this also includes a stronger focus on specific customer needs and the expansion of locations in low-cost countries. While brisk progress was made with the expansion of production capacity in Poland, Brazil, and China, the Company was unable to achieve its ambitious cost-cutting targets in full, especially in the second half of the year, due to the overall market situation. The restructuring and the cost cutting action carried out in 2006 will improve the cost structure, but will only begin to take effect later.

R&D Expenditure

Product development
-For the new MINI of BMW Group, the Company has developed a new environmentally friendly needlepunch carpet, free of latex

-As one of the major requirements in automobile engineering is weight reduction, Rieter Ultra Light technology enables systems to be manufactured which absorb noise more effectively and at the same time are lighter than competing products.

-The production and delivery of underfloor modules with natural fiber reinforcement was extended to further DaimlerChrysler models after deliveries had been launched in 2005 for a single vehicle type.

- Investments at Automotive Systems were aimed at establishing and expanding production facilities in emerging economic regions in Eastern Europe and Asia., while at the same time adjusting capacity in Western Europe. The Company therefore opened a new manufacturing facility in northern China, and a plant will commence production in the current year.The Company also established locations in Poland, Spain, Brazil and the US in order to support customers even more effectively.