Financial overview

Consolidated (in million euros)	FY2007	FY2006	Rate of change (%)	Factors
Sales	5,060.4	4,314.0	17.3	See note 1) below
Net Income	223.0	191.8	16.3	See note 2) below
Sales by segments
Piston Systems Product Line	1,296	1,279	1.3	See note 3) below
Cylinder Components Product Line	752	483	55.7	See note 4) below
Valve Train Systems Product Line	655	527	24.3	See note 5) below
Air Management Systems Product Line	819	690	18.7	See note 6) below
Liquid Management Systems Product Line	535	510	4.9	See note 7) below

Factors
1) <Overall>
-In the 2007 business year, the Company achieved sales of EUR 5.06 billion. Much of the growth in sales resulted from acquired companies and parts of companies included in the consolidated financial statements for the first time (EUR 541.9 million, 12.6%). The significant additions related to the acquisition of the engine parts business of the Dana Corporation and the air intake modules and air filtration business segment of Siemens VDO. Other acquisition activities included the forming of the majority joint venture MAHLE Tri-Ring Valve Train (Hubei) Co., Ltd., China, and the purchase of the shares in Edival S.A., Argentina, and Promotora de Industrias Mecanicas, S.A. de C.V. (Promec), Mexico.
Excluding exchange rate factors, the Company achieved growth of 20%, of which 7% was due to organic business expansion.

2)
-Despite the considerable rise in sales and successful measures to increase productivity, the Company's operating profit was approximately at the previous year's level. In particular, significant increases in the costs of raw materials, which could not be passed on to the customers to a sufficient degree, reductions in sale prices, and foreign currency changes had an adverse effect on profit. In addition, some of the newly acquired units put a significant strain on profit, as expected; far-reaching integration and restructuring measures were started as planned, which entailed considerable expenditure.

3) <Piston Systems Product Line>
-The organic growth amounted to 4.6%. The positive development of sales was primarily supported by the sustained economic situation in the European automotive industry. Sales of piston-conrod assemblies stabilized at the satisfactory level of the previous year.

-The plants in Europe increased their sales considerably in comparison with the previous year. Alongside the healthy development of business in the passenger car diesel piston activities, sales of passenger car gasoline pistons also rose. In the commercial vehicle segment, the commercial vehicle aluminum piston and MONOTHERM(R) piston activities improved considerably, while sales of FERROTHERM(R) pistons stabilized at the previous year's level.

-In North America, it was not possible to achieve the high sales level of the previous year. The sustained purchasing restraint on the part of the consumers had a negative impact on the development of business in the passenger car piston segment. However, significant sales were achieved in light commercial vehicle pistons for the first time. New emission regulations in the USA put a heavier strain than anticipated on the commercial vehicle piston activities in comparison with the previous year.

-As a result of the continuation of the favorable economic situation, sales in South America were stabilized at the previous year's level, although the development of the exchange rate of the Brazilian real to the U.S. dollar adversely affected exports invoiced in U.S. currency. There was higher demand for commercial vehicle pistons than in the previous year, while sales of pistons for passenger cars increased slightly in comparison with the previous year.

-In the Asia/Pacific region, the previous year's sales were exceeded slightly, despite unfavorable exchange rate developments in Japan. The resulting decline in sales in Japan was more than compensated for by the markets in China and Thailand, which benefited from the region's positive economic development. Compared with the previous year, sales of passenger car gasoline pistons increased, while sales of commercial vehicle pistons fell. The reduced domestic demand prevented the Australian plant from achieving the previous year's sales level.

4) <Cylinder Components Product Line>
-Extensive acquisitions of former competitors firms led to a considerable increase in sales in the Cylinder Components product line during 2007. As a result of the acquisition of the engine parts business of the Dana Corporation, sales of piston rings and engine bearings increased, particularly in North America and Europe. The acquisition of all the shares in the Mexican company Promotora de Industrias Mecanicas, S.A. de C.V. (Promec) led to growth in sales in Mexico and the USA in the piston rings and cylinder liners segments. Through these acquisitions, the product line succeeded in positioning itself as the second largest manufacturer of piston rings and engine bearings worldwide.

-The continuation of the healthy economic environment in the commercial vehicle sector, particularly in Europe, the ramp-up of new, technically demanding products for passenger car and commercial vehicle engines, and the lively domestic economy in Brazil led to organic growth of 9% in the 2007 business year, with particularly positive development in engine bearings, piston rings and pins, and cylinder liners. Sales of connecting rod blanks also increased in Europe on the basis of high market share. The rising demand for steel connecting rods in North America led to an increase in sales of fully machined connecting rods. The positive development of business was adversely affected by overall negative currency exchange rate factors, primarily due to the weak U.S. dollar.

-The Company and the Japanese Riken Corporation signed a Memorandum of Understanding for global cooperation, whereby worldwide cooperation projects will be researched and supported in addition to the existing joint venture for the manufacturing of piston rings, Allied Ring Corporation in the USA.

5) <Valve Train Systems Product Line>
-The Valve Train Systems product line was able to significantly increase its sales in comparison with the previous year. Besides remarkable organic growth, this was also due to several new acquisitions. The product portfolio in the NAFTA region was extended to include camshafts for commercial vehicles as a result of the acquisition of the location in Russellville, USA, from the Dana Corporation. The acquisition of Edival S.A., Argentina, and the founding of the majority joint venture MAHLE Tri-Ring Valve Train (Hubei) Co., Ltd., China, at the beginning of 2007 strongly improved the position in the global valves market.

-Sales in the sintered parts product segment were significantly above the previous year's level. This is due to the sustained diesel boom, which generated strong demand for turbo charger parts.

-The camshafts product segment was also able to increase its sales in comparison with the previous year. Strong demand led to considerable growth in sales in the unmachined chilled cast iron camshafts segment. Likewise, demand for ready-toassemble camshafts was significantly above the previous year's level. In the composite camshafts product segment, the further production ramp-up of existing series led to corresponding growth in sales.

-Sales in the cylinder heads, engine blocks, and complete engine product segments were above the previous year's level as a result of new startups and heavy demand for existing series. The healthy unit sales position of a prominent customer formed the basis for this increase in sales.

-The valve locations were able to benefit from increased demand in the European market for ongoing series activities. The two new acquisitions also contributed to significant growth in sales. The Argentinean valve factory, recently integrated into the Group network, significantly improved the MAHLE Group's positioning, particularly in the commercial vehicle valve segment. An extremely positive starting position in the growth market of Asia was achieved with the new majority joint venture in China.

6) <Air Management Systems Product Line>
-The growth of business in the Air Management Systems product line was mainly due to the acquisition of the intake modules and air filtration business segment of Siemens VDO in June 2007. The new acquisition strengthened the worldwide presence of the product line and led to a sales increase in comparison with the previous year. The organic business development varied across the regions of the world. Changes in exchange rates put a strain on the development of sales expressed in euro of the plants in North America as well as on the sales in Japanese yen and Korean won in Asia. The activities in Asia were able to achieve organic growth, allowing for foreign currency exchange rate effects. The growth in sales in Europe and North America窶蚤lso allowing for foreign currency exchange rates窶背as substantially higher than the intake modules and air filtration business segment acquired from Siemens VDO.

-In Europe, the growth in sales was primarily due to the newly added location in England. Together with significant growth in sales in the existing plants in Austria and England, this more than offset the lower tool sales compared with the previous year and the activities in France that remained below expectations.

-Activities in the NAFTA region were heavily influenced by the acquisition of the air management activities of Siemens VDO, with newly added locations in Canada and Mexico.
Consequently, sales in the region almost doubled in comparison with the previous year. The acquired plants are also making a substantial contribution to the balance of the customer portfolio in the region.

-In Japan, the decline in sales presented in euro, which was due to foreign currency exchange rate effects, was almost offset, primarily by higher unit sales in commercial vehicle activities. The strongest growth in Asia was recorded in China. The increase in sales in China compared with the previous year was due on the one hand to the acquisition of the intake modules and air filtration business segment of Siemens VDO and, on the other hand, to significant organic growth. The newly acquired activities were integrated into the existing location in Shanghai and housed in a new location in Changchun. In addition, the intake module activities from the production facility in Tianjin and air filters from the Guangzhou production plant produced significant organic growth.

7) <Liquid Management Systems Product Line>
-The Liquid Management Systems product line achieved sales growth of 5% in the past business year. In Europe, sales increased as a result of higher unit sales and the new startup of oil filter modules and oil pan modules. Intra-Group sales with the MAHLE Aftermarket segment also increased considerably. In North America, sales rose in comparison with the previous year as a result of the ramp-up of the activated carbon canister activities acquired in 2006 from Behr and the startup of fuel filter module activities. Sales stagnated in South America. Increases in fuel filters were offset by the end of production for a key customer.

-In Japan, euro sales fell in comparison with the previous year because of the weaker domestic demand and foreign currency exchange rate effects, although sales increases were achieved in oil filter modules. As a result of the first-time inclusion of the Korean activities, which resulted from a new distribution of production between the Air Management and Liquid Management Systems product lines, the product line achieved additional sales growth in comparison with the previous year. A further increase in sales was generated as a result of the ramp-up of production at the new plant in Shanghai.


Joint venture
-In November 2007, the Company announced that the Company and India Pistons Ltd. had signed an agreement for a joint venture for the manufacture of pistons for new engine applications. The joint venture will primarily focus on the production of pistons for gasoline and diesel engines for the fast growing Indian market requiring compliance with future emission regulations, such as Euro IV and above. It will also introduce new piston designs with oil cooled galleries for new diesel engine generations. The new company which will operate as MAHLE India Pistons Ltd. is a 50/50 joint venture with MAHLE holding the industrial and technological leadership. The manufacturing facilities of the joint venture will be located in India Pistons Ltd.'s plant near Chennai, India. The actual production capacity of approximately 3.2 million pistons per year is expected to double within three years. In the year 2008, the company will be employing a work force of about 300 employees and is expected to achieve sales of approximately 25 million EUR. (From a press release on Nov. 29, 2007)

Acquisitions
-In March 2007, the Company announced that MAHLE Metal Leve S.A., its Brazilian subsidiary, has acquired the Argentinean company Edival, located in Rafaela, province of Santa Fe. The acquisition includes the whole operation of Edival comprising the industrial plant as well as the administrative, sales and engineering offices. Edival, which was established in 1953, produces mainly valves, valve guides and valve seat inserts for internal combustion engines supplying to several different markets including OEM, aftermarket, racing, and aircraft segments. In 2006, Edival is expected to reach annual sales above 40 million USD. Edival has approximately 800 employees. (From a press release on Mar. 21, 2007)

-In March 2007, the Company completed the acquisition of the engine hard parts business of Dana corporation. The business consists of 39 facilities, which manufacture piston rings, engine bearings, cylinder liners, and camshafts under the Perfect Circle(R), Clevite(R), and Glacier Vandervell(R) brands. With annual revenues of approximately $670 million in 2005, the engine hard parts operations employ approximately 5,000 people in 10 countries.

-In June 2007, the Company announced that its subsidiary MAHLE Industries, Inc. has entered into a stock purchase agreement with Grupo Condumex, S.A. de C.V., Mexico. From Condumex, MAHLE will acquire 51% of the shares of capital stock of Promotora de Industrias Mecﾃ｡nicas, S.A. de C.V. (Promec) which owns Sealed Power Mexicana, S.A. de C.V. and Sealed Power Autopartes, S.A. de C.V. The planned acquisition includes a total of about 1,100 employees in 4 production plants in Mexico, which are located in Aguascalientes, Naucalpan, Ramos Arizpe, and Santa Catarina. In 2006 the business generated sales of USD 67 million. (From a press release on June 22, 2007)

-The Company announced that the acquisition of the air intake module and air filtration business division from Siemens VDO (SVDO), a division of Siemens AG, was success-fully concluded as of June 1, 2007. The acquisition includes all worldwide units of Siemens VDO's business division "air intake modules and air filtration" with locations in Canada, Mexico, England and China. In 2006, the turnover of the division was approximately EUR 300 million, generated by approximately 1,000 employees. The main products are air intake modules and air filter systems for passenger car gasoline and diesel engines. With this acquisition MAHLE is further expanding its worldwide activities in the business division air intake systems and air filtration. (From a press release on June 5, 2007)

R&D Structure
7 R&D centers are as follows :
-Stuttgart, Germany
-Northampton, UK
-Farmington Hills, near Detroit, USA
-Novi, near Detroit, USA
-Sao Paulo, Brazil
-Tokyo, Japan
-China, Shanghai


R&D Expense

(in million Euros)	FY 2006	FY 2005	FY 2004
R&D Expense	242	219	N.A.

New Product Development
Alternative fuels
-Extensive combustion tests using a single-cylinder engine with variable design are carried out on alternative fuels. This allows, for example, different fuel-alcohol mixtures to be tested for their cold-start characteristics, firing behavior, and emissions under different engine conditions. In close cooperation with the Company's customers, the engineers of MAHLE Powertrain窶琶ts engineering services provider with many years of outstanding competence in the development and production of high-performance engines窶背ork intensively on application projects for alternative fuel systems. The use of alternative fuels also affects fuel and oil filtration. It has thus become clear that it is not just fuel filter media that must be adapted to the new conditions. The accumulation of biodiesel in engine oil may cause the formation of extremely aggressive compounds at high temperatures, to which oil filter media are directly exposed. MAHLE Liquid Management Systems has recognized these new requirements at an early stage and is already working on innovative products that show resistance to these new operating conditions.


New combustion control technology
-In November 2007, the Company established new combustion control technology for gasoline turbo engines to realize both lower fuel consumption and higher output. Traditionally, the use of EGR (exhaust gas recirculation) was often limited with gasoline turbo engines, as they operate in high boost pressure. But the new technology expands the operational range of the EGR and controls combustion temperature more efficiently, so that engines can operate at lean combustion under normal condition and at theoretical air fuel ratio under full load condition. As a result, gasoline cooling processes for controlling combustion temperature are no more necessary and engines do not need to operate at rich air fuel ratio. (From an article in the Nikkan Jidosha Shimbun on Nov. 28, 2007)


Fully variable valve train
-The fully variable valve train system is one of the most promising technologies for reducing fuel consumption and increasing performance and torque across the entire load range of gasoline engines. It represents a further development of the MAHLE CamInCam(R) technology, already used in series production, which allows effective engine control by means of variable timing.
In combination with a specially developed rocker arm package, the new valve train technology achieves full variability of stroke, opening time, and opening duration of the intake and exhaust valves, forming the basis for throttle-free load control. The Company is also using this technology in the development of the CAI (Controlled Auto Ignition) combustion process in partial load ranges. This would allow a potential fuel saving of around 15 percent.


Friction minimization
-In systematic test runs, the Company determines the factors affecting friction in both the complete system and the individual components in a specially designed full engine test bench with extremely precise measuring capabilities. At the same time, tests are being conducted using the 窶徼ear-down窶 process, in which individual engine components are removed in a predefined order and the frictional loss of the remaining unit is measured. This allows, for example, the effect of individual piston and piston ring parameters to be examined and their effect on the friction losses in the engine to be selectively analyzed. Tests of this kind can also be used to assess weight reduction measures specifically in terms of frictional loss. Coatings, such as the DLC (Diamond-Like Carbon) coating for piston pins and rings or the PVD (Physical Vapor Deposition) coating for piston rings (top and oil rings), also help to reduce the frictional loss in the crank mechanism. In addition, the wear characteristics are being improved significantly.
Optimization approaches to reducing fuel consumption involving roller bearings for the camshaft, connecting rods, and crankshaft are being investigated. The MAHLE lightweight valve is also being developed further, because it not only reduces frictional loss in the valve train, but also has outstanding properties for use in lean operation of supercharged gasoline engines on account of its internal cooling.

Capital Expenditure

EUR in millions	FY2007	FY2006	FY2005
Piston Systems Product Line	78	75	87
Cylinder Components Product Line	69	47	54
Valve Train Systems Product Line	44	27	41
Air Management Systems Product Line	37	35	35
Liquid Management Systems Product Line	33	42	34

Investments by Segments
<Piston Systems Product Line>
-With capital expenditure on fixed assets of EUR 78 million and an investment ratio of 5.5%, the Piston Systems product line once again marginally exceeded the already high capital expenditure level of the previous year. Because of the large number of new customer projects, a substantial portion of the investments was used to further expand capacities. Continued measures in rationalization and continuous process and quality improvement formed additional focuses of investment.
In Europe, increasing productivity in individual plants was the focus area. Other investments contributed toward innovative process technologies, e.g., for the production of diesel pistons capable of withstanding a high thermal load. The focus of capital expenditure in North America was the optimization of the production plant for commercial vehicle pistons in the USA. Capital expenditure in the Asia/Pacific region concentrated on the expansion of production at the subsidiary in Thailand and the Japanese plants in Tsuruoka and Yamagata.

<Cylinder Components Product Line>
-Investments increased significantly in the past business year. This is due to the growth in existing activities as well as new acquisitions. Like last year, one of the focus areas was preparation for the startup of new customer projects. At the location in Mexico, capacities for the machining of connecting rods were expanded and the regional presence was strengthened by the construction of a raw part manufacturing facility. Capacities for piston rings and cylinder liners for passenger car and commercial vehicle diesel applications were expanded. This involved the implementation of new technologies that take into account the
increased demands on the products. The piston ring production facilities commissioned in China in 2006 were extended. In addition, the product portfolio at the location was expanded. Construction began on a connecting rod manufacturing facility in China, which will supply customers locally from 2008. Process improvements in all product divisions formed another focus of investment.

<Valve Train Systems Product Line>
-The majority of the Valve Train Systems product line's investments were used for expanding capacities and rationalization projects. In Switzerland, the production restructuring measures in connection with the construction of the new plant in Grenchen were completed by means of investments. At the Polish location, investments were made in building extension, blank manufacturing, and the expansion of mechanical machining of valves and valve guides. As a result of the increased demand for camshafts made from chilled cast iron,
particularly for the North American market, the foundry in Brazil was expanded substantially.
In India, investments were made to acquire land and construct a new building in
connection with the necessary expansion. In order to meet the rising demand for valves from the Company's plants in Argentina and China, the capacities of the newly acquired valve plants have been increased.

<Air Management Systems Product Line>
-The product line's capital expenditure on fixed assets in the 2007 business year amounted to EUR 37 million, representing an investment ratio of 4.2% of sales exceeding depreciation. Investments in Asia, particularly Chinese locations, remained in focus. Acquired activities were integrated into existing locations and output capacities were expanded further in Guangzhou and Shanghai for new products. In Europe, a large proportion of the investments were directed toward the Company's plant in Austria. The funds were invested primarily
for manufacturing new products in the startup phase, as well as for optimizing production. In North America, investments were higher than the previous year, with the enlarged base including the new activities from the intake modules and air filtration business segment acquired from Siemens VDO.

<Liquid Management Systems Product Line>
-The capital expenditure level of the Liquid Management Systems product line was significantly lower in the past business year, as considerable investments were made in 2006 for the expansion of the activated carbon canister production facility in North America. In relation to sales, the investment ratio for 2007 was 5%. In Europe, investments focused on the expansion of the oil filter module production facility, construction of the oil pan module production facility, and the production of oil filter modules from plastic. Other investments were made to expand the infrastructure of the new locations in Romania, China, and Korea.