Prof. Dr. Heinz K. Junker Chairman of the Management Board

Once again, under difficult conditions, we succeeded in achieving significantly stronger growth than the market and the automotive industry in general. In 2005, MAHLE achieved sales of more than EUR 4 billion for the first time in the company’s history, corresponding to an increase of almost 10 percent in comparison with the previous year. The driving forces for this development were, in particular, the markets outside Europe. North and South America and, most of all, Asia made a vital contribution to this growth. Today, we generate the majority of our profit in the regions of the world outside Europe. This is where, in recent years, we have been able to set the course for the future with new plants and plant expansions, and are now benefiting from the expanding demand with extended local development and production capacities.

The high demand worldwide for commercial vehicles and the proportional increase of diesel drives to almost 50 percent in the passenger car sector in Europe also had a positive effect on the growth of sales. MAHLE traditionally plays a strong role in both market segments on account of its technological leadership. With our various engine systems for high-performance diesel engines, we are the world leader and have a global presence with large market shares.

The sales increases we achieved resulted primarily from internal organic growth and, to a lesser extent, from strategic acquisitions. These include the acquisition of the Cosworth Technology Group – now MAHLE Powertrain – on January 1, 2005. This acquisition strengthens our engineering and systems competence. It also opens up new business prospects for the long term – from engineering services to integrated powertrain and engine equipment. MAHLE Powertrain’s R&D centers in Northampton/England and Novi near Detroit/USA, are now integrated into MAHLE’s research and development activities with jointly coordinated projects. Another milestone is our new R&D center in Shanghai/China, which will open at the start of 2006 and eventually form another pillar of our global engineering competence in one of the automotive industry’s largest markets of the future. In addition, we have strengthened our activities in India and Thailand.

As a result of the expanded business volume, we were able to continue the development in revenue recorded in recent years. Improvements were achieved in both earnings before interest and taxes (EBIT) and the Group net income for the year. The partly very high increases in material prices, which we were unable to pass on to our customers to a sufficient degree, also had a burdensome effect. Unfavorable exchange rate relationships, particularly for export volumes from Brazil and Poland, also put a strain on profit. On top of this, the price pressure from our customers is continuing unabated. The general weakness of the market in Europe and North America and the resulting economic difficulties for some of our major customers played a significant role in this development. Overall, we also succeeded in further improving our solid balance sheet structure. By doing so, we have created a strong basis for further growth at above-average levels.

In view of the continuing unsatisfactory profit development in Germany, we agreed on measures to secure locations and safeguard employment with the employee councils and union committees in spring 2005, which include, in return, a reduced level for wage and salary increases, further flexibility in working hours and a separate service agreement with modified conditions. This complete package, which is linked to specific factors for economic success, should bring about competitive conditions for the future at our German locations.

In a difficult international environment, we are faced with the task of improving our global competitiveness and further strengthening MAHLE’s dedication to performance through the optimum use of all resources and the personal commitment of each individual. Our new slogan “Driven by performance” points the way. At our international executive meeting, the above-average dedication to performance was identified as an integral part of the MAHLE corporate identity and as an important brand value. Performance is, and remains, the driving force of our success – worldwide. In this annual report, we let the performance and appeal of our products speak for themselves.

On behalf of the Management Board, I would like to thank all employees for their dedication and commitment in the past business year and our business partners for their good cooperation.

Heinz K. Junker