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Miba Business Report FY2006

Business Highlights

Financial overview

in million euros

 FY2006/07 FY2005/06 Rate of change Factors
Overall
Sales 366.5 347.0 5.6% Adjusted for the sales volume of the site in Naples (Italy), which was sold in the current business year, the consolidated sales volume increase would have been significantly higher, namely 8.5 percent. The Company benefited from the positive developments in its main customer markets, from commercial vehicles and construction equipment up to and including ships. Automotive production in Europe, Miba Sinter Group's primary market, gained some momentum during the course of the business year and recorded moderate growth despite the rise in fuel prices.
Earnings before taxes 15.5 21.7 (28.3)% Earnings before taxes (EBT) for the past business year were weighted down by the non-recurring effects from the divestiture of the Naples site for the amount of EUR 6.1 million and thus decreased from EUR 21.7 million in
the previous year to EUR 15.5 million in the current business year. Including the non-recurring effects incurred during the past business year, this figure corresponds to a 4.2 percent return on sales (ROS) as compared to a 6.3 percent return on sales in the previous year.
Sales by Segments
Sinter Group 160.6 155.8 2.4% Growth was mainly attributed to the start-up of challenging large scale projects for engine parts, such as sintered camshaft gears, mass balancer gears and clutch elements for manual transmissions. Preliminary work in the form of tooling and
sample production for additional new orders has been carried out, the results of which will become visible in the years to come as increased sales volume and earnings. Furthermore, Miba Sinter Group was confronted with substantial increases in the prices of metal powders and energy which could only partially be passed on to the customers. The EBITDA
decreased slightly, from EUR 8.1 million to EUR 7.5 million.
Bearing Group 145.2 131.9 10.1% The dynamic development of its customer markets has continued during the 2006/2007 business year and has once again led to decisive growth. The Company has benefited from this situation and was able to record market share gains in 2006/07.
During the same time period, the Group's EBITDA slightly increased to EUR 37.6 million.
Friction Group 62.5 60.0 4.2% This positive development is primarily due to the consistently high demand for clutch linings for commercial vehicles and the increased demand for brake segments for
high-speed trains and wind power stations.
EBITDA for the reporting period decreased from EUR 4.9 million to EUR 1.3 million. This was due to the start-up costs (EUR 3.2 million) for the new friction material plant in Vrable exceeding the projected cost.

Details by Division

Sintered Components Division (Sinter Group)

Optimized production site concept
On October 31, 2006, its production site in Naples, employing 170 people, was sold to the Italian investor. With the sale of the Naples site, Miba Sinter Group emphasized its clear strategic orientation towards high technology. During the past business year alone, EUR 9 million were invested in the high technology sites of Vorchdorf (Austria) and Dolny Kubin (Slovakia), thereby expanding their high productivity levels and further increasing quality. This optimized production site concept forms part of Miba Sinter Group's preparatory work for the expected growth in the automotive industry in the Far East. For that purpose, a production site for shock absorber parts and small engine components was established in Suzhou (China) during the past business year.
Engine Bearings Division (Bearing Group)

- In order to optimally serve the increased demand and to be well-equipped for further growth, an extensive construction project was started at the Laakirchen site during the past business year. Production capacities were increased and the tooling and set-up segments were modernized. Completion is expected in the first half of the current business year. An investment amounting to EUR 3.5 million serves to further expand the high technological standard of Miba's bearing production in the segment diesel engines for ship drives.
-In 2006/07, the McConnelsville (US) site benefited from the positive market situation in the core segments locomotives and compressors. During the past business year, at the production site for input stock, Advanced Bearing Materials (Greensburg, US), changes and
improvements were made to achieve additional efficiency increases in the series production of steel-lead-bronze strips for the purpose of gaining independence from suppliers. At the beginning of 2006, after only eight months of construction, the production facility, Miba Precision Components (China) was inaugurated. This production plant is located in the Suzhou industrial park. The local production of truck bearings practically guarantees the proximity of the major Chinese engine and vehicle producers. In a first stage, approximately EUR 10 million are invested in this new site, which will also produce sintered components. 40 jobs were created in the first expansion stage. In the medium term, the number of employees will increase significantly. In 2006/07, Miba Automation Systems (MAS), a member of Miba Bearing Group, concluded one of its largest individual orders since the company's inception.
Friction Materials Division (Friction Group)
-The relocation of the steel plates production from Sheffield (England) to Vrable (Slovakia) has progressed further during the past business year. The series production at the new site was started up during thesecond half of the 2006/07 business year. Due to the excellent economic conditions and the high demand attributable thereto, the remaining machines from the Sheffield site will not be relocated until the first half of the current business year. This will ensure that a competitive series production is established for optimally filling its customers' orders. The Vrable plant complements the Roitham site in an ideal manner and provides its Austrian sister company with input stock. Starting from the current business year, 80 percent of Roitham's steel plates' needs will be met by the Vrable plant.
-In 2006/07, Friction Group's Austrian site in Roitham recorded a very high level of plant utilization. Due to increasing customer demand, a fourth shift was introduced in certain production areas during the second half of the year. Miba HydraMechanica, the US production site with head offices in Sterling Heights, was operating at high capacity due to orders from the aviation industry and the automotive sector.

Divestiture
-Oct. 31, 2006, Miba AG announced to sell its sinter plant in Naples with 170 jobs to an Italian investor. This move is aimed at securing the Company's existence in the long term. By optimizing its location concept, Miba is preparing for the anticipated market growth in the automotive industry in Far East. This includes building a manufacturing facility for shock absorber and small engine components in Suzhou.

Outlook
-For the 2007/08 business year, the Company is counting on a favorable economic environment in its target markets and a continuation of its path towards growth. Consistently increasing production figures for the engine and automotive industry are expected for the years to come. With the new plant in Suzhou (China), especially Miba Bearing Group and Miba Sinter Group will have an opportunity to benefit from the continuing dynamics of the emerging markets in the Far East.

Sinter Group will consistently continue to focus on technologically complex components. Miba Sinter Group's Management is convinced that the growth from new business at the high-tech sites in Vorchdorf and Dolny Kubin will completely compensate for any loss in sales volume resulting from the sale of the Naples site.

Following three years of strong market growth, Bearing Group's management is expecting a consistently high market volume for 2007/2008.
Among the operative priorities are the efficient start-up of production in China and the market developments concerning truck bearings and two-stroke diesel engines for ship drives.

With the construction of the new friction material plant, Friction Group has set the course for profitable growth, banking once again on increasing its sales volume in 2007/08. With the non-recurring effects resulting from the relocation behind the Company, the Company anticipates a sustainable improvement of the results from operations.

R&D

R&D Expenditure

 (In million euro)

 FY2006/07 FY2005/06 FY2004/05
R&D Expenditure 18.5 17.5 11.3
% of Sales 5% 5% 3.5%

R&D Structure
- According to a study by the EU Commission, the Company is one of the top 500 most research-intensive corporations in Europe and among the top ten of the most research and development oriented corporations in Austria.
- The number of patents filed increased by 23% in the reported year.

New Product Development
Bearing Group
In 2006/07, Miba Bearing Group developed a complete, lead-free bearing line for commercial vehicles which has already entered into series production. Thus, Miba technology provides bearings with a high stability under load, without resorting to the use of lead, for commercial vehicle applications. For two-stroke diesel engines used in ship drives, the SYNTHECR coating process is the first environmentally-friendly and lead-free bearing coating released for use to renowned clients. This coating process enables higher assembly loads and increases bearing life. In the past year, Miba Bearing Group's research focused on lead-free bearing materials and bearing coatings and the production processes related thereto, heavy fuel oil resistant three-material bearings and the further development of simulation tools.

Friction Group
In 2006/07, Miba Friction Group put its latest developments and products for trains into practice, namely a low-noise brake lining for trains and a new high-energy brake lining for high-speed trains. In the field of commercial vehicles, a new carbon friction material for synchronizer rings, featuring higher strength and increased shifting comfort, was developed and brought to market maturity. The additional focus of R&D activities was on sintered clutch segments for passenger cars and commercial vehicles, paper friction materials with a high static friction coefficient, and paper or carbon friction materials with a positive friction coefficient gradient.

Investment Activities

Investment by segment

 (In million euro)

 FY2006/07 FY2005/06 FY2004/05 FY2003/04
Sinter Group 15.1 16.8 14.5 9.9
Bearing Group 9.8 8.5 5.5 5.5
Friction Group 5.3 17.6 2.0 5.5
others 1.7 3.9 2.7 3.5
Investment Total 31.9 46.8 24.7 24.4

-Following the above-average investment of EUR 46.8 million (excluding financial assets) in the previous year, investments in the past year remained at a high level of EUR 31.9 million, of which EUR 14.4 million went to Miba's Austrian sites.

-On March 26, 2007, Miba opened its new plant in the Suzhou Industry Park, 90 kilometers west of Shanghai. China's great market potential offers growth opportunities for Miba in the region. Local production of engine bearings and sintered components ensures close contact with Asian customers. The initial investment in the new plant amounted to approximately 10 million euros.