Annual Report 2010 The BAUER Group is an international and machinery manufacturing concern based in , . The stock market-listed holding company BAUER Aktiengesellschaft is the parent of more than 110 subsidiary businesses across its Construction, Equipment and Resources segments. Bauer is a leader in the execution of complex excavation pits, foundations and vertical seals, as well as in the development and manufacture of related machinery for this dynamic market. The Group also deploys its expertise in the exploration, mining and safeguarding of valuable natural resources. In 2010 the companies of the BAUER Group employed some 9,100 people in around 70 countries and achieved total Group revenues of EUR 1.3 billion.

Passion for progress

The origins of Bauer date back as far as 1790, and still today the company's success is founded on highly flexible application of the specialist know-how it has built up over those many years. As an innovator and technology leader,

Bauer has played a major role in the advancement of the international specialist foundation engineering industry and related business fields. Indeed, today Bauer is also the world market leader in manufacture of the relevant machinery. It is with just such innovative strength and a keen focus on the challenges of the future, that the Group is also developing its recently established Resources segment. The Group at a glance

GROUP KEY FIGURES 2007-2010 Change: IFRS in EUR million 2007 2008 2009 2010 2009/2010 Total Group revenues * 1,208.1 1,527.2 1,275.8 1,304.0 2.2 % of which * 331.6 379.5 361.4 339.1 -6.2 %

International 876.5 1,147.7 914.4 964.9 5.5 %

International in % 72.6 75.2 71.7 74.0 n/a of which Construction * 531.8 700.9 570.0 615.4 8.0 %

Equipment * 643.1 780.1 608.5 581.7 -4.4 %

Resources * 112.0 135.1 174.3 177.7 2.0 %

Other/Consolidation -78.8 -88.9 -77.0 -70.8 n/a

Consolidated revenues * 1,159.4 1,455.3 1,226.0 1,255.6 2.4 %

Sales revenues 1,033.0 1,290.8 1,096.5 1,131.7 3.2 %

Orders received * 1,403.8 1,580.7 1,113.1 1,410.0 26.7 %

Orders in hand (as per December of current year) 618.0 671.6 508.9 614.9 20.8 %

EBITDA * 185.4 228.4 157.4 165.5 5.2 %

EBITDA margin in % (of sales revenues) * 17.9 17.7 14.4 14.6 n/a

EBIT 131.8 167.5 84.4 88.4 4.7 %

EBIT margin in % (of sales revenues) 12.8 13.0 7.7 7.8 n/a

Net profit or loss 74.4 107.5 42.0 39.8 -5.3 %

Capital investment in property, plant and equipment 96.4 140.6 136.8 90.7 -33.7 %

Shareholders' equity 279.1 372.6 401.9 443.9 10.4 %

Equity ratio in % 34.1 35.8 33.9 33.2 n/a

Net assets 818.0 1,041.5 1,185.2 1,337.7 12.9 %

Earnings per share 4.23 6.09 2.28 2.04 -10.5 %

Dividend payment (2010 proposal) 17.13 17.13 10.28 10.28 0.0 %

Dividend per share in EUR (2010 proposal) 1.00 1.00 0.60 0.60 0.0 %

Return on equity after tax in % 33.4 38.5 11.3 9.9 n/a

Employees (on average over the year) 6,983 8,674 8,872 9,094 2.5 % of which Germany 3,324 3,781 4,062 4,036 -0.6 %

International 3,659 4,893 4,810 5,058 5.2 %

At variance with the consolidated revenues presented in the Group income statement, the total Group revenues presented here include portions of revenues from associated companies as well as revenues of non-consoli- dated subsidiaries and joint ventures.

* Previous year figures adjusted (for explanation see footnote on page 130) * Previous yearfigures adjusted(forexplanationseefootnoteonpage130) 2010 2009 2008 2007 in EURmillion DEVELOPMENT OFTOTAL GROUPREVENUESBYSEGMENT RESOURCES SEGMENTKEYFIGURES EQUIPMENT SEGMENTKEYFIGURES CONSTRUCTION SEGMENTKEYFIGURES Total Group revenues * in EUR'000 Total Group revenues * in EUR'000 Total Group revenues * in EUR'000 EBIT Orders inhand* Orders received * salesrevenuesof whichexternal EBIT Orders in hand* Orders received * salesrevenuesof whichexternal Employees (onaverageovertheyear)* Net profit orloss Employees (onaverageovertheyear) Net profit orloss Net profit orloss Employees (onaverageovertheyear)* EBIT Orders in hand* Orders received * salesrevenuesof whichexternal 297,959 512,972 487,894 570,017 114,068 485,878 456,468 608,477 191,297 152,003 174,302 13,109 25,746 24,966 51,306 96,920 2009 2009 2009 4,935 2,739 3,105 5,997

953 Construction 354,240 18.9 671,684 30.9 505,758 3.7 % 615,403 8.0 % % % 139,963 22.7 607,577 25.0 469,252 2.8 % 581,682 -4.4 % % % 120,733 24.6 201,557 5.4 156,398 2.9 % 177,744 2.0 % % % 28,798 11.9 % 090-16.3% 20,900 48,283 -5.9 % 2010 2010 2010 ,9 -23.8% 9,995 5,055 2.4 % 2,775 1.3 % ,9 70.6% 1,019 6.9 5,298 8,075 34.7 % % qimn Resources Equipment Change Change Change 1,304 1,276 1,527 1,208 > >

GROUP KEY FIGURES AT A GLANCE > BAUER Aktiengesellschaft 2010 Annual Report

2 Management Board of the Company 72 The Bauer Share

4 Foreword 74 Declaration on Corporate Governance / Corporate Governance 6 Milestones in the Company's History Report 8 The World is our Market 78 Report of the Supervisory Board 11 Group Management Report 81 Balance Sheet and Income Statement 11 I. Group of BAUER Aktiengesellschaft in

14 II. Macro-Economic Trend accordance with HGB

21 III. Trends in the Business Segments 85 Consolidated Financial Statements in accordance with IFRS 37 IV. Trend in Orders Received 154 Declaration of the Management Board 39 V. Earnings, Financial and Net Asset Position 155 Auditors' Report 47 VI. Remuneration Report 156 Imprint 51 VII. Sustainability

57 VIII. Follow-up Report

59 IX. Risk and Opportunity Report

69 X. Outlook 2

Management Board of the Company

PROF. DIPL.-KFM. THOMAS BAUER Supervisory Board mandates: (CHAIRMAN) • BAUER Spezialtiefbau GmbH, Schrobenhausen (Chairman) ¹ Professor Thomas Bauer (born 1955) heads the Participa- • BAUER Maschinen GmbH, Schrobenhausen tions in Subsidiaries, Financial Reporting, Planning and (Chairman) ¹ Controlling functions on the Management Board of BAUER • BAUER Resources GmbH, Schrobenhausen Aktiengesellschaft. (Chairman until December 7, 2010) ¹ • SCHACHTBAU NORDHAUSEN GmbH, Nordhausen After studying business economics at the Ludwig Maximil- (Chairman) ¹ ian University in , he worked in the USA. He joined • BAUER EGYPT S.A.E., Cairo (Chairman) ¹ the family company in 1982. In 1986 he became sole man- • Mannheimer Holding AG, Mannheim ² aging director of BAUER Spezialtiefbau GmbH and since 1994 he has been Chairman of the Management Board of BAUER Aktiengesellschaft.

Professor Thomas Bauer is President of the Bavarian Con- struction Industry Association, Vice-President for Econom- ics of the Confederation of the German Construction Indus- try and Vice-President of the Confederation of Bavarian Industry (vbw). He is an honorary professor of the Technical University of Munich.

¹ Internal Supervisory Board membership

² Memberships of Supervisory Boards or comparable supervisory bodies of business entities in Germany and abroad, in accordance with Section 285 No. 10 of

the German Commercial Code (HGB) MANAGEMENT BOARD OF THE COMPANY 3

DIPL.-BETRIEBSWIRT (FH) HARTMUT BEUTLER

Hartmut Beutler (born 1957) is responsible for the Finance, Legal Affairs and Insurance, and Facility Management func- tions on the Management Board of BAUER Aktiengesellschaft.

He studied business economics (specializing in the construction industry) at Biberach University of Applied Sci- ences and joined BAUER Spezialtiefbau GmbH as a trainee in 1983. He later became deputy head of that company's Accounting department and assistant to the Management Board. After working as head of IT, Facility Management, Legal Affairs and Insurance at BAUER Spezialtiefbau GmbH, as well as being a company "Prokurist" (holder of power of attorney), Hartmut Beutler was appointed to the Management Board of BAUER Aktiengesellschaft in 2001.

Supervisory Board mandates: • BAUER Resources GmbH, Schrobenhausen ¹ • Raiffeisenbank Schrobenhausen e. G. (Chairman) ² DIPL.-ING. HEINZ KALTENECKER

Heinz Kaltenecker (born 1951) is responsible for the Partici- pations in Subsidiaries, Human Resources and Information Technology functions on the Management Board of BAUER Aktiengesellschaft. He is also the Labour Relations Director.

After studying civil engineering at the Technical University of Karlsruhe, he joined BAUER Spezialtiefbau GmbH in 1978. He performed a number of senior management functions, including being managing director of BAUER Spezialtiefbau GmbH from 2001 to 2007. Heinz Kaltenecker was manag- ing director of BAUER Resources GmbH from 2007 to 2010. He has been a member of the Management Board of BAUER Aktiengesellschaft since 1997. Heinz Kaltenecker is a board member of the German Geotechnical Society and a member of the Large Construction Companies subcommit- tee of the Confederation of the German Construction Industry.

Supervisory Board mandates: • BAUER Spezialtiefbau GmbH, Schrobenhausen ¹ • BAUER Maschinen GmbH, Schrobenhausen ¹ • BAUER Resources GmbH, Schrobenhausen (Chairman since December 7, 2010) ¹ • SCHACHTBAU NORDHAUSEN GmbH, Nordhausen ¹ • German Water & Energy Pakistan (Private) Ltd., Islamabad (Chairman) ¹ 4

Foreword

Dear Shareholders, Partners and Friends, Ladies and Gentlemen,

The year 2010 will go down in history as the year when the economic crisis unexpectedly diminished, virtually into non- existence. It does, however, also mark a significant break with the past. Much has changed as a result of the crisis. We are unlikely to see such an unfettered market economy ever again. Unfortunately, the pendulum will doubtless swing back to the other extreme over the coming years, with massive new levels of over-regulation and the establishment of exaggerated self-regulating mechanisms in business (compliance, corporate governance, etc.). Our shaken policy-makers will seek solutions to many problems in ideas we believed had been discarded 20 to 30 years ago.

So everyone in the business world would be well advised to restrain their celebrations for a while. They should observe trends over the next few years very closely, encouraging adjustment and correction where appropriate so as to translate the per- ceived upswing into positive long-term economic growth.

The upward trend seen in Germany in 2010 did not extend to every sector equally. There was one fundamental reason for this: it was driven primarily by economic growth in China and other Far East countries. Their progress was so strong that a number of other countries in the 'old' West were pulled along by them. The automotive industry especially – along with all its component suppliers – profited substantially from the trend. Prestigious brands and symbols play a particularly strong role in emerging economies. Everyone is keen to demonstrate what they have achieved. This drove the strong rises in sales of pre- mium models from the major German car manufacturers – the segment in which the best growth rates were achieved.

In other sectors, and for other companies, the trends were not nearly as healthy. Businesses which suffered particularly were those who manufacture large capital goods, for which long-term planning is required and which only represent worthwhile investments for their buyers if they can foresee strong markets for many years ahead. This was the case for example in the construction industry – and therefore even more so in the industry which manufactures and sells construction machinery. Although it, too, saw regional variations, with positive impetus from Far East markets, there were few signs of recovery overall.

Two years ago, the companies of the BAUER Group were among the last to be hit by the crisis. Today we are again among the last to be in a position to move out of crisis back into growth. So all in all we are happy to report that 2010 brought an end to the decline. We ended the financial year with revenue and earnings figures around the same level as the previous year.

In fact, our business could have recovered even more strongly. In addition to the normal economic cycle, we were affected by a number of rather negative, though random, factors: a new deep drilling rig could not be shipped due to payment prob- lems in the destination country, two major projects in Jordan were delayed, and refinancing in relation to earlier inventory financing agreements led to a substantial increase in the relevant balance sheet items. As a result the company's working capital rose, entailing negative effects on balance sheet ratios. All these factors are not problematic in terms of ongoing development, but they do require some explanation, which we are of course glad to provide, even when times are difficult.

All in all, the 2010 Annual Report presents the story of a relatively satisfactory year, portrays a picture of healthy progress being made, and sets out sound prospects for 2011.

In the Construction segment, we returned to strong sales growth after a weak previous year. EBIT earnings for 2010 are also well above those of the prior year. We once again handled some very attractive projects. Outstanding among them were large excavation pits for the Louvre and Guggenheim museum buildings in Abu Dhabi, excavation pits for underground rail- way stations in Egypt, a highly challenging bridge foundations project in Canada where difficult ground conditions were over- come, and the next phase of dyke remediation works on Lake Okeechobee in Florida. We began 2011 with very healthy or- FOREWORD 5

ders in hand. While prospects in Germany are somewhat limited, we believe our international markets will deliver continued growth for our business.

In the Equipment segment, full-year 2010 sales fell further, though most of our smaller subsidiaries returned to an upward trend. Most construction companies – the customers of our machinery business – had imposed strict caps on capital in- vestment, which meant that the market for smaller standard equipment was very heavily affected. By contrast, sales of our large machinery for special projects were relatively healthy. Market trends varied widely across the world. We achieved very strong growth in the Far East, while in other regions we suffered substantial falls. Despite the generally negative trend, the segment still succeeded in generating relatively healthy earnings. We do not yet see any signs of a rapid upturn for our machinery manufacturing business in the near future. Buyers are still being very cautious. We nevertheless expect to sell higher volumes of equipment once again in 2011. The new deep drilling and base carrier products offer additional new market opportunities. As a result, our machinery sales will again achieve growth this coming year.

Our Resources segment took a major step forward in terms of orders received. The start of two major projects in Jordan was delayed for a number of months in 2010, so that overall segmental revenues remained only at 2009 levels. Profit growth was positive. The contracts from Jordan to drill wells down to varying depths have now provided us with a very good basis for utilization of our capacities over the current year. A particularly pleasing milestone for us was the completion of the world's largest biological sewage treatment plant in Oman. It was able to handle the full specified water volume for the first time in December. We hope that this business will bring us more follow-up orders. We believe that growth in this segment can be sustained, accompanied by improved earnings.

Difficult times put many different aspects to the test. By undertaking reorganization in a wide variety of areas we are focus- ing the strengths of our businesses even more closely on the needs of our customers. The Group's Management Board has been reduced to three members. In the Equipment segment, a management consultancy has helped to target our product development activities more closely to specific market needs. We are convinced that this will enable us to become much more flexible. Our new production facilities are making extensive efforts to adjust their productivity to the newly created opportunities. The issues of safety and quality are being raised to even higher levels of priority by a wide range of programmes.

The crisis has not yet passed, but opportunities are increasing again significantly. The major challenge facing us in the current year will be to judge the risk entailed by the foreseeable ongoing turbulence correctly, and to take the opportunities which arise with strong commitment. All our employees are making every effort to ensure that our business makes positive progress. We ask that our shareholders, business partners and friends continue to provide us with their valuable support and assistance in doing so.

Yours sincerely,

Prof. Thomas Bauer 6

Milestones in the Company's History

1790 · 1900 · 1902 · 1928 · 1948 · 1956 · 1958 · 1967 · 1969 · 1972 · 1975 · 1976 · 1984 · 1986 · 1990 · 1790 1900–1956

>>> 1790 Sebastian Bauer acquires a coppersmith's shop in the centre of Schrobenhausen; in the 19th century, subsequent Bauer generations were engaged in copper working, primarily for breweries and domestic households

>>> 1900 Start of well drilling by Andreas Bauer >>> 1902 Drilling of an artesian well for the Schrobenhausen railway station >>> 1928 Dipl.-Ing. Karl Bauer constructs the Schrobenhausen water supply system; construction of wells and water pipes throughout Bavaria >>> 1948 First works on Wittelsbacherstrasse >>> 1956 Dr.-Ing. Karlheinz Bauer, a shareholder in the company since 1952, becomes sole managing director >>> 1840 Construction of a first office building in Wittelsbacherstrasse Copper cladding for the steeple roof of St. Jakob's church in Schrobenhausen

Dipl.-Ing. Karl Bauer (left) turned the company into an indus- trial well builder known throughout Bavaria. Dr.-Ing. Karlheinz Bauer (centre) led the company onto the international stage, taking it into the field of specialist foundation engineering and launching equipment manufacturing operations. Prof. Dipl.-Kfm. Thomas Bauer shaped the current global Group, with a network of operations on every continent. MILESTONES IN THE COMPANY'S HISTORY 7

1992 · 1994 · 1998 · 2001 · 2002 · 2003 · 2004 · 2005 · 2006 · 2007 · 2008 · 2009 · 2010 1958–1998 2001–2010

>>> 1958 >>> 2001 Invention of the injection anchor on the construction BAUER Maschinen GmbH becomes an independent site of the Bayerischer Rundfunk building in Munich company >>> 1967 >>> 2002 New workshops on Pöttmeser Strasse Purchase of machinery manufacturing facilities in Aresing >>> 1969 >>> 2003-2005 First anchor drilling rig UBW 01 Specialist companies in a variety of fields are acquired >>> 1972 and integrated into the BAUER Group: FWS Filter- und Construction of the new head office administration block Wassertechnik GmbH; PRAKLA Bohrtechnik GmbH; >>> 1975 TracMec Srl, Imola, Italy; Pileco, Inc., Houston, Texas, USA First contracts in Libya, and the United >>> 2006 Arab Emirates BAUER AG is listed on the stock market >>> 1976 >>> 2007 First heavy-duty rotary drilling rig BG 7 Founding of BAUER Resources GmbH, entailing a re- >>> 1984 structuring of the mining and environmental business; Works complex West begins operations well engineering materials from the GWE Group; mar- Manufacture and deployment of the first trench cutter ket launch of the three new segments: Construction, to seal the Brombachsee lake Equipment and Resources First contracts in the Far East >>> 2008 >>> 1986 Expansion of machinery manufacturing capacities in BAUER Spezialtiefbau GmbH, Prof. Thomas Bauer Aresing and Nordhausen as well as in Tianjin and becomes sole managing director and drives forward , China the international growth of the Group >>> 2009 >>> 1990 The BAUER Group concludes the largest capital in- Founding of BAUER und MOURIK Umwelttechnik vestment programme in its history: official opening of GmbH and of SPESA Spezialbau und Sanierung the new head office administration building in Schroben- GmbH hausen and of the Edelshausen plant; inauguration of >>> 1992 the machinery manufacturing plant in Conroe, Texas, USA. Takeover of SCHACHTBAU NORDHAUSEN GmbH >>> 2010 >>> 1994 25 years of cutter technology Founding of BAUER Aktiengesellschaft >>> 1998 Takeover of KLEMM Bohrtechnik GmbH 8

The World is our Market

OVER 110 IN MORE THAN 70 GROUP COMPANIES COUNTRIES

EUR 1.3 BILLION TOTAL GROUP REVENUES

9,094 EMPLOYEES THE WORLD IS OUR MARKET 9

24 PRODUCTION FACILITIES in Germany, Sweden, Italy, USA, China, Russia, Poland, Hungary, Malaysia, Singapore, Turkey

Construction

Equipment sales

Resources

Equipment production locations

11

Group Management Report

I. GROUP

Today the BAUER Group, together with its operating compa- carrying out underground and civil engineering projects, as nies, is a global construction and machinery manufacturing well as in the fields of environmental technology and reme- concern operating on all the world's continents. The stock diation. market-listed holding company BAUER Aktiengesellschaft, based in Schrobenhausen, is the parent company of more The Equipment segment develops and produces construc- than 110 subsidiaries, with locations in some 70 countries, tion machinery, equipment and tools for the specialist across its Construction, Equipment and Resources seg- foundation engineering sector as well as for other under- ments. ground drilling operations, such as for mines, water wells, geothermal energy sources, oil and gas extraction. In addi- The Construction segment carries out all the established tion to its headquarters in Schrobenhausen, Equipment methods and techniques of specialist foundation engineer- segment parent Bauer Maschinen operates a global distri- ing all over the world. This includes executing complex ex- bution network, as well as additional production facilities in cavation pits, foundations for large-scale infrastructure Germany, China (Shanghai and Tianjin), Malaysia, Russia projects and buildings, cut-off walls and ground improve- (at three locations), Italy, Sweden and the USA. With ex- ment. It also operates in the specialist construction field, ports accounting for around 90 percent of its total sales,

CONSTRUCTION EQUIPMENT

RESOURCES

<<< British Group subsidiary BAUER Technologies Ltd. is working as part of a joint venture on the development of Tottenham Court Road Station in London. GROUP MANAGEMENT REPORT 12 Group

BAUER Maschinen GmbH is the world market leader in a wealth of information and assistance, as well as setting out specialist foundation engineering equipment. procedures and safety rules for the correct and proper han- dling of operational processes. The Resources segment works as a service provider in the fields of water, environmental technology, energy and This self-managing structure is linked to a centralized natural resources. It grew out of spin-offs from existing system of risk management and control, and to a central businesses in the original specialist foundation engineer- Group accounting function. This ensures the necessary ing and equipment segments. It is divided into three control and monitoring of the decentralized business units. divisions: Materials, Exploration and Mining Services, and Environment. Statements regarding the role of the Management Board and Supervisory Board and in relation to other issues of The Materials division is focused on the development, corporate governance are set out in the Declaration on manufacture and sale of materials for the exploration and Corporate Governance on pages 74 to 77 of this extraction of groundwater and for the distribution of drink- Annual Report, which is published on the Internet at ing water. The Exploration and Mining Services division http://www.bauer.de/en/investor_relations/reports/ in the carries out exploratory drilling and mining of raw materials Investor Relations section under Reports & Accounts. and drilling of wells and geothermal energy sources. The Environment division provides services for the treatment of STATUTORY DISCLOSURES REGARDING TAKEOVER soil, water and air, principally at contaminated sites. It also The following disclosures are made pursuant to Section treats industrial process water, waste water and sewage, 315, Subsection 4 of the German Commercial Code (HGB). as well as producing drinking water. • Composition of subscribed capital As the Group's holding company, BAUER Aktiengesellschaft BAUER AG is a public limited company (stock corporation) provides central management and service functions for its with headquarters in Germany. The company's subscribed affiliates. These specifically include human resources, ac- capital (share capital) totals EUR 73,001,420.45 and is di- counting, finance, legal and tax affairs, safety and the vided into 17,131,000 no-nominal-value bearer shares, environment, information technology (IT) and facility man- representing a pro rata amount of approximately EUR 4.26 agement functions. per share of the total share capital. Each share entitles the holder to one vote at the Annual General Meeting and a cor- CORPORATE GOVERNANCE responding share in profit. In the cases subject to Section The BAUER Group is organized in a decentralized struc- 136 of the German Stock Corporation Act (AktG), voting ture, divided into self-managing units. The principle of a rights arising from the shares in question are excluded by decentralized, self-managing organization is backed by a law. Multiple share categories do not exist. centralized, structured system of control and monitoring. At December 31, 2010, 51.81 percent of the shares were The basic principles and policies governing the autonomous in free float, as in the previous year. The members of the management of the operating divisions are set out in the Bauer family own a total of 8,256,146 no-nominal-value core management instrument – the Corporate Management shares in BAUER AG on the basis of a pool agreement, Manual. The Manual specifically lays down the principles of representing a 48.19 percent share in the company. The corporate governance which form the basis for the ethical pool agreement provisions include binding voting commit- and moral conduct of the company's management in carry- ments as well as a right of pre-emption of pool participants ing out the company's business. Framework guidelines and if any member of the pool sells shares to third parties. No codes of conduct are centrally defined, and implemented by other direct or indirect holdings of BAUER Aktiengesellschaft BAUER Group managers in the various segments, divisions share capital exceeding 10 percent of the voting rights are and individual companies. The Manual additionally provides known to the company. GROUP MANAGEMENT REPORT 13 Group

None of the shareholders has special rights entailing con- and a Chairman of the Management Board, as well as a trolling powers. Nor does any voting rights control exist on Labour Director. It is permissible to re-appoint or extend the part of the employees holding shares in the capital. the appointment of a member of the Management Board for a further maximum term of office of five years. Any • Authority of the Management Board to issue or buy appointment or re-appointment requires a decision by the back shares Supervisory Board, which may be taken no earlier than one Article 4, Clause 4 of the company's Articles of Association year prior to the end of the relevant term of office. The states that the Management Board is authorized, with the Supervisory Board may rescind an appointment to the consent of the Supervisory Board, to increase the share Management Board or an appointment as Chairman for capital, in whole or in part, once or more than once, by up good cause. The Presidial and Personnel Committee of to a total of EUR 2,000,000.00 by the issue of new no- the Supervisory Board prepares the Supervisory Board's nominal-value bearer shares against cash and/or non-cash decisions on the appointment and termination of appoint- contributions (authorized capital). The authorization further ment of Management Board members and concerns itself provides, in specific cases, for the legal rights of subscrip- with the long-term planning of successor members for tion of the shareholders to be excluded with the consent appointment to the Management Board. of the Supervisory Board. In accordance with Sections 179 ff. AktG, the amendment By resolution of the Ordinary Annual General Meeting held of the Articles of Association is passed by the Annual Gen- on June 24, 2010, the company was authorized to acquire eral Meeting with a majority of at least three quarters of the treasury stock, over a limited period up to June 23, 2015, share capital represented at the vote. Pursuant to Article 12 representing up to a total of 10 percent of the company's of the Articles of Association, the Supervisory Board is au- share capital at the time the resolution was passed. At the thorized to pass amendments to the Articles of Association same time, the authorization to acquire treasury stock ex- which relate only to its wording. The Supervisory Board is piring on December 24, 2010 was cancelled. With regard further authorized to adapt the wording of Article 4 of the to use of the bought-back shares, the authorization pro- Articles of Association (amount and division of the share vides, in specific cases, for legal rights of subscription of capital) following full or partial execution of the increase in shareholders to be excluded. The facility to acquire treas- share capital or on expiration of the authorization period ac- ury stock has not been utilized to date. cording to the respective utilization of the authorized capital.

• Appointment and termination of appointment of • Change-of-control clauses Management Board members, amendments of the Several promissory notes in amounts totalling EUR 177 Articles of Association million (as per December 31, 2010), agreed by BAUER AG BAUER AG is managed and represented in its dealings with together with BAUER Spezialtiefbau GmbH, BAUER third parties by the Management Board. The appointment Maschinen GmbH and SCHACHTBAU NORDHAUSEN and termination of appointment of members of the Manage- GmbH as the borrower and guarantor, provide for a right ment Board of BAUER AG is regulated by Sections 84 and of termination for cause by the lender in the event of a 85 of the German Stock Corporation Act (AktG) and Sec- change of control or acquisition of control in BAUER AG. tions 30 ff. of the German Co-determination Act (MitbestG) The conditions relating to the change of control are in line in conjunction with Articles 5 and 6 of the company's Arti- with standard market terms. A change of control is con- cles of Association. The Management Board comprises at sidered to have taken place where a third party directly or least two persons, who are appointed by the Supervisory indirectly acquires control of at least 30 percent or the Board for a maximum term of office of five years. With effect majority of voting shares in BAUER AG. from October 25, 2010, the Supervisory Board reduced the number of members of the Management Board by one. Additional long-term loan agreements also exist within the Consequently, at present the Management Board com- Group which provide for a right of termination for cause, at prises three members appointed by the Supervisory Board market terms, in the event of a change of control. GROUP MANAGEMENT REPORT 14 Macro-Economic Trend

II. MACRO-ECONOMIC TREND

GLOBAL ECONOMY AND MARKETS benefited as a result. In emerging economies, premium Ger- There was general pleasure and surprise at the speed of man models such as Audi, BMW and Mercedes-Benz are economic recovery in Germany and worldwide in 2010. It much sought-after prestige symbols. The automotive compo- had only been just over a year previously – in autumn 2008 nents industry is also profiting substantially from these trends. – that the failure of the Lehman Brothers bank had hit the USA and led to major turbulence in the global financial Unfortunately, the recovery has not spread across all sec- system. The consequence was a recession in Germany tors in Germany to an equal extent. Trends in major projects and many other countries throughout the world such as in the construction industry were slightly negative, for exam- had not been seen for many decades. A year later – in 2010, ple, and construction machinery sales were still well down the year under review – the German economy had recov- on the boom years prior to 2008. ered sufficiently to record growth of well over 3 percent. The global economy likewise saw a very strong upturn. As pleasing as the rapid recovery is, it must also be em- phasized that ongoing further growth cannot be taken for The response to the crisis was an unprecedented level of in- granted. The world continues to be beset by many dangers ternational cooperation, clearly oriented to the fundamental and risks which demand prudent responses and smart de- rules of good economic governance. Following the Keynes- cision-making by policy-makers as well as by business. ian model, demand was boosted in the economies of most The following are some of the major risks faced: countries around the world by substantial deficit spending in the form of economic stimulus packages. The dramatic • The substantial levels of indebtedness of several coun- economic decline, which saw Germany's economy contract tries in the European Union entail considerable risk for the by almost 5 percent in 2009, was stopped and rapidly euro. Only concerted effort by the member-states has to turned around. It is also clear, however, that economic activ- date prevented damaging losses. The instability of the ity levels are still around 2 percent down on those of 2008. system and the financial situation in countries such as Greece, Portugal and Ireland is forcing those countries to In Germany, the economic stimulus packages were accom- adopt strict austerity measures. However, such consoli- panied by widespread implementation of short-time work- dation also means that the economy in the countries af- ing. The aim of this was to prevent a public loss of confi- fected and across the EU is suffering from shortfalls in dence resulting from mass redundancies. These schemes demand. It will only be possible for the upturn to bring last- enabled companies to retain existing staff ready to handle ing improvement over the coming years if the economic the upturn when it arrived. It was an approach which driving forces remain stronger than these impediments. proved successful. A further decline in consumer spending due to loss of confidence was avoided. As the recovery • The German economy is heavily dependent on the suc- took hold, businesses were in a position to immediately cess of its export business, especially its automotive in- boost their output again and so take the new opportunities dustry. China plays a key role in this. Past experience arising. Today, Germany's unemployment levels are lower shows that the Chinese government is willing to take than in recent years. In many industrial sectors there is rapid action to counter the threat of economic overheat- even a shortage of skilled staff. ing. The measures it took a few years ago in such a situa- tion brought imports of construction machinery virtually Other key factors in the rapid upturn were international to a standstill within days. It then took quite some time trends. The major countries of the Middle and Far East, before the restrictions were relaxed once again and im- especially, recovered quickly based on very expansive ports could resume. Consequently, there are concerns in economic policies, and countries such as India and China relation to the automotive industry that if German exports returned to growth rates approaching 10 percent in 2010. are too successful similar measures might again be insti- These trends stimulated significant demand in the German gated, with the resultant very negative impact on the economy. Germany's automotive industry, in particular, has German economy. GROUP MANAGEMENT REPORT 15 Macro-Economic Trend

• Some economies have for a number of months once • In the face of all these problems, a number of vitally im- again been confronted with substantial risk in relation to portant issues which need to be resolved have been their domestic markets, as a result of which the recovery pushed into the background. In Germany and many seen over the last year might quickly end, and descend other countries, demographic change has brought into a double-dip recession. The prime examples of this about an economic problem which is barely being ad- are in the USA and Great Britain. The governments in dressed any more. Environmental problems, particularly these countries are making major efforts to ward off any air pollution, are rising. In this context, too, dialogue with such risk, but it still persists. China needs to be intensified further. Environmental poli- cies are no longer being pursued with the same com- • The countries of the Arab world have become much mitment as they were just a few short years ago, when riskier in the early weeks of 2011. Areas of political con- environmental issues were seen as the major risk to flict are spreading. Many people across the region are global economic development. There is also much less no longer willing to accept rule by undemocratic, debate on such issues today. Yet the financial burdens despotic leaders. The major divergence between rich which we will face in confronting these issues over the and poor is another key factor. Popular uprisings in coming years will be considerable – though also of Tunisia, Egypt and Libya, and protests in a number of course opening up major opportunities to businesses other countries, have resulted in considerable political operating in the field. turbulence and might well encourage similar unrest around the region. The economic consequences of • When problems appear overwhelming, politicians tend to these changes are as yet uncertain. divert the debate to secondary issues. This is being seen at present in Germany with the discussion on quotas for • Another problem for the global economy is posed by women at the top management levels of companies. The marked shifts in influence and power in various regions debate affects about 7,000 people in total. It seems very of the world. China has emerged as a global superpower questionable that such rulings would be of substantive in recent years, and has become the world's largest benefit to the German economy. In our businesses – creditor nation. Military might is no longer as much of a which mostly have a highly technical focus – the lack of major factor as economic power. The USA is financing appropriately qualified personnel would mean that any its budget deficit mainly by loans from China. In history, enforced quota regulation could for the most part be im- it has always been the "bankers" who held the greatest plemented only on the basis of tokenism, which would power. This will remain the case in future. But it is not doubtless be damaging to the businesses concerned. only China which has gained greatly in power over re- We strictly reject the idea of such regulations. cent years. The Arab world – and especially the Emirate of Abu Dhabi – has become a financier of global growth, It is always difficult to judge the medium-term impact of and today is profiting not only from its oil and gas wealth any economic risk. Nevertheless, we do see a number of but also from the windfall gains linked to the aid it has positive trends: provided to numerous international businesses and states. There is an increasing shift in power around the • The greatest opportunities lie in the fact that over recent world. There were times in history when the world was decades many of the world's major countries – Russia dominated by the Venetians, the Fugger dynasty or the and China being the largest of all – have revolutionized Dutch, with their Far East trading links. Nowadays this their economic structures to adopt market economies. role is increasingly being played by the Arabs and Chi- At the same time, the communist or socialist past of nese. It goes without saying that such shifts in power many of those countries means they have significant bring with them new risks. development needs in order to catch up with long- GROUP MANAGEMENT REPORT 16 Macro-Economic Trend

standing free-market economies. This trend is a major • In the USA the situation is very uncertain. The recent driver of global economic growth. economic stimulus packages instigated by the Obama administration will, however, continue to bring a degree • Of course, many problems still remain to be solved: sus- of stability. tainable energy production, low-consumption motor vehi- cles, global infrastructure, extraction of raw materials of • Africa, too, has good chances to share in economic all kinds, cleaning up the environment, and many other development more than in the past, as many of its similar challenges. There are great opportunities for busi- countries have major opportunities for growth based on nesses operating in such fields. The BAUER Group, too, their substantial amount of natural resources. is devoting its attentions to those issues – particularly through the Resources segment which it established a The BAUER Group is very well set, both regionally and few years ago. We regard this area as offering us major through its three segments, to cope with these turbulent opportunities for further growth. times. After years of concerted development, our Con- struction, Equipment and Resources segments are well • The key in all such considerations is that any unanswered represented on all world markets, enabling us to balance question or perceived risk also entails an opportunity. out any variations in market trends. Our strong presence Problems pose a challenge to human creativity – and cre- in the Far East, in particular, provides us with some at- ativity is usually a much more powerful force than the tractive growth opportunities for the coming years. And problem it confronts. Human history shows that many so- the strategic thinking behind our products and services lutions which are inconceivable in the present turn out, is also demonstrating its efficacy in the current situation. once identified, to be the keys to the future. This is some- We have been aware for some years that future growth thing with which we are confronted on a daily basis in our in specialist foundation engineering will weaken, even if it efforts to come up with new ideas for the future. continues to increase as a proportion of overall con- struction volumes. The major cities of the world will need The various problems and opportunities are spread very more and more infrastructure projects in order to pre- diversely around the globe. The following section con- vent their traffic systems from choking to death. The siders their effects on the BAUER Group in more detail. massive lack of space in city centres means that more and more transport routes are having to be installed un- • European countries will be dealing with the effects of the derground or on elevated highways and bridges. This economic crisis for some years to come. This also af- will open up a greater role for foundation engineering fects Germany. specialists. The shortage of land is also forcing develop- ers of city centre building projects or industrial installa- • In Eastern Europe, Russia will recover much more rapidly tions to rely increasingly on brown-field sites which first than many observers currently expect. This vast country has have to undergo technical ground improvement meas- great oil and gas resources, and is very rich in a wide variety ures. Our machinery selling business, too, will profit from of raw materials. Other countries in the region will also this trend over the coming years. emerge from their deep lows faster than currently expected. The future development of our business will be particu- • The countries of the Middle East will continue to profit larly focused on our recently established Resources from supplying the world with oil and gas, and will segment. Our performance here is becoming ever more be able to sustain their development virtually unhin- important to us. It will only be possible to sustain and dered. increase global prosperity if the world's problems relat- ing to supplies of energy, natural resources and water • In the Far East, rapid economic growth will be sustained can be resolved. All policy-makers and business leaders by enormous backlogged demand. are working on these issues. The BAUER Group has a GROUP MANAGEMENT REPORT 17 Macro-Economic Trend

wide range of products and services to offer in related of 2.2 percent to EUR 1.304 billion. Sales rose by 3.2 per- fields, so we are very confident of being able to achieve cent to EUR 1.132 billion. Since the construction industry healthy growth for many years. We have also been ex- was affected relatively late by the crisis, it is also one of the panding our machinery manufacturing operations in these fields with new product developments in recent years. GEOGRAPHICAL BREAKDOWN Today we offer a complete range of deep drilling rigs for OF TOTAL GROUP REVENUES geothermal energy, oil and gas and water well applica- in EUR million tions. We are also developing specialist equipment to en- Germany 339 (26 %) gineer foundations for offshore (underwater) energy in- Africa 70 (5 %) stallations in hostile operating conditions. America 155 (12 %) Although the German construction sector nowadays ac- Asia-Pacific, Far East & Australia counts for only a small portion of our total business, it is 252 (19 %) of major importance to us as our home market. It is to be expected that the German construction market will stabi- lize at its present low level over the next two years. The figures – for construction companies with over 20 em- ployees – show that the market achieved no real growth in 2010, despite the economic stimulus packages.

CONSTRUCTION MARKET STATISTICS FOR GERMANY – CHANGE: 2010 AGAINST 2009 in % Germany West East Europe (other) overall Germany Germany 131 (10 %)

Sales -2.3 -3.0 0.0 Middle East & Central Asia 204 (16 %) Hours worked -0.5 -0.7 0.2 EU excl. Germany 153 (12 %) Employees 1.9 1.6 2.9 Orders received 1.6 1.6 1.6

Source: German Construction Industry Federation last sectors to begin recovering. In this situation, our Group succeeded in utilizing the opportunities which In summary, it can be stated that international markets arose in the various world markets. The decrease in after- generally improved once again in the year under review. tax earnings to EUR 39.8 million (previous year: EUR 42.0 A positive trend is to be expected over the coming years, million) is the result of weaker prices in a tougher competi- too. After being affected by the crisis, the BAUER Group tive environment. It also reflects the additional fixed costs has achieved a turnaround over the past year and is back arising from the capital investment programmes under- on course for growth. We are convinced that in the com- taken in recent years. ing years we will be in a position to profit from positive trends in all our products. In the Construction segment, consolidated revenues in- creased by 8.0 percent to EUR 615.4 million. Segment COURSE OF BUSINESS EBIT (earnings before interest and taxes) rose as a conse- After suffering significant declines in the previous year, the quence to EUR 28.8 million (+11.9 percent), while net profit BAUER Group was able to stabilize its performance in the for the period decreased by 23.8 percent from last year's year under review, achieving an increase in total revenues EUR 13.1 million to EUR 10.0 million. GROUP MANAGEMENT REPORT 18 Macro-Economic Trend

DEVELOPMENT OF TOTAL GROUP REVENUES BY SEGMENT

in EUR million (segments after deducting Other/Consolidation) Total 1,304

1,500

1,250 Resources 172

1,000 Equipment 533 750

Construction, 500 international 424

250 Construction, Germany

0 175 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

In the Equipment segment – in the year under review still prove structures and so generate more opportunities in fu- our most successful area of business, despite the heavy ture. Consequently, earnings were also affected by addi- impact of the crisis – consolidated revenues fell by 4.4 tional costs. percent against the previous year to EUR 581.7 million. Segment EBIT dropped by 5.9 percent from EUR 51.3 Performance in 2010 was very variable compared to the million to EUR 48.3 million. The decrease was mainly due previous year. In 2009 the first half of the year was still to the lower revenues and the resultant relatively higher marked by high levels of orders in hand, particularly in fixed costs. Net profit for the period fell by 16.3 percent machinery manufacturing operations. The Group's rev- to EUR 20.9 million. enues were therefore still very healthy. By contrast, the second half of 2009 was already markedly overshadowed The Resources segment, which has only been in exis- by the crisis. Revenues and earnings fell significantly. In the tence for a few years, again made positive progress. The year under review the trend was almost entirely the oppo- segment's consolidated revenues of EUR 177.7 million site. The first half of 2010 was very weak, following on from were virtually at the previous year's levels, while segment the previous year. The second half of the year then already EBIT increased by 34.7 percent to EUR 8.1 million. Net began to show substantial signs of recovery. Consequently, profit for the period rose by 70.6 percent to EUR 5.3 mil- the comparative figures in the 2010 quarterly reports were lion. The reason for the lack of growth in revenues was characterized by major variations relative to the previous- the postponement of two major projects in Jordan, year periods. By the end of the year the figures were then though they will now boost the current year's revenues. very closely matched, indicating the prospect of improved Major efforts continue to be made in this segment to im- trends once again in future. GROUP MANAGEMENT REPORT 19 Macro-Economic Trend

BREAKDOWN OF TOTAL GROUP REVENUES BY SUBSEGMENT

Change in EUR million 2009 2010 Share Orders against Revenues Revenues 2010 in hand previous year BAUER Spezialtiefbau GmbH (BST) BST, Germany 109.7 112.4 8.6 % 2.5 % – Subsidiaries, Germany 11.0 13.5 1.0 % 22.7 % BST, international 94.2 66.0 5.1 % -29.9 % Subsidiaries, international 361.7 429.8 33.0 % 18.8 % +

BST Group total 576.6 621.7 47.7 % 7.8 % SCHACHTBAU NORDHAUSEN GmbH incl.

Construction segment subsidiaries (SBN) * 55.6 51.6 4.0 % -7.2 % SPESA Spezialbau und Sanierung GmbH 16.8 17.0 1.3 % 1.2 % less intra-Group revenues and -79.0 -74.9 -5.8 % IFRS adjustments

Construction total 570.0 615.4 47.2 % 8.0 % BAUER Maschinen GmbH (BMA) 465.6 377.9 29.0 % -18.8 % Equipment subsidiaries 297.9 343.9 26.4 % 15.4 %

BMA Group total 763.5 721.8 55.4 % -5.5 % SBN * 58.5 54.6 4.1 % -6.7 % –

Equipment less intra-Group revenues and -213.5 -194.7 -14.9 % IFRS adjustments

Equipment total 608.5 581.7 44.6 % -4.4 % BAUER Resources GmbH (BRE) 6.6 7.4 0.6 % 12.1 % Resources subsidiaries 174.0 173.4 13.3 % -0.3 % +

BRE Group total 180.6 180.8 13.9 % -0.1 % + SBN * 17.6 17.4 1.3 % -1.1 % +

Resources less intra-Group revenues and -23.9 -20.5 -1.6 % IFRS adjustments

Resources total 174.3 177.7 13.6 % 2.0 % + BAUER Aktiengesellschaft (BAG) 58.0 32.7 2.5 % -43.6 % Other subsidiaries 1.5 1.9 0.2 % 26.7 % less intra-Group revenues and

Other -30.5 -3.9 -0.3 % IFRS adjustments

Total Other/services 29.0 30.7 2.4 % 5.9 % less intra-Group revenues and -106.0 -101.5 -7.8 % IFRS adjustments Group total (including minority interests) 1,275.8 1,304.0 100.0 % 2.2 % of which: Germany 361.4 339.1 26.0 % -6.2 %

International 914.4 964.9 74.0% 5.5 %

* Previous year figures adjusted (for explanation see footnote on page 130)

Notes on the table: List also includes non-consolidated holdings Breakdown Germany/international according to Valuation of orders in hand relative to budgeted sales: country in which accounting figures were allocated. -- weak; - slightly weak; adequate; + well adequate; ++ very well adequate; For reasons of complexity the figures are not ab- Percentages and totals are calculated on the basis of unrounded starting values solutely precise.

GROUP MANAGEMENT REPORT 21 Trends in the Business Segments

III. TRENDS IN THE BUSINESS SEGMENTS

CONSTRUCTION SEGMENT

CONSTRUCTION SEGMENT KEY FIGURES

in EUR '000 2009 2010 Change

Total Group revenues * 570,017 615,403 8.0 % of which external sales revenues 487,894 505,758 3.7 % Orders received * 512,972 671,684 30.9 % Orders in hand * 297,959 354,240 18.9 % EBIT 25,746 28,798 11.9 % Net profit or loss 13,109 9,995 -23.8 % Employees (on average over the year) * 4,935 5,055 2.4 %

* Previous year figures adjusted (for explanation see footnote on page 130)

Once again in 2010, the Construction segment proved Group revenues higher than 2009, the latter months of the to be a stabilizing element for the BAUER Group in the year were somewhat weaker again in percentage terms face of the ongoing crisis. With total Group revenues of measured against the very strong previous year. EUR 615.4 million, a healthy growth rate of 8.0 percent against the previous year comparative (EUR 570.0 mil- Overall, we are satisfied with trends in the Construction lion) was achieved. Segment EBIT was likewise up on segment. The specialist foundation engineering business 2009, by 11.9 percent from EUR 25.7 million to EUR made a particularly strong contribution to revenues in the 28.8 million. By contrast, the net profit for the period year under review thanks to some major projects from all (after tax) fell from EUR 13.1 million in the previous year regions of the world, except for Europe. to EUR 10.0 million. The key factors in this were the higher income tax expense and the lower earnings from Germany participations. The higher income tax resulted, firstly, After a good year in 2009, we again saw a decline in rev- from the transfer of non-deductible subsidiaries' losses enues and earnings in Germany in 2010. The funding and, secondly, from various taxation effects including provided by the government's economic stimulus pack- those of deferred taxes. ages had no effect on our market. We expect the German construction market to decline further over the next two The markets in the Middle and Far East and the USA years. The price situation on the market became increas- were particularly pleasing for our businesses. We handled ingly difficult as the year progressed – a trend reflected a number of major specialist foundation engineering proj- particularly in the weak earnings. A major contract in Mu- ects in these regions. Domestic revenues, by contrast, nich provided us with a sound basic utilization of capaci- remained virtually unchanged, with earnings declining ties. The project involves constructing excavation pits for against the previous year's levels. This related primarily a tunnel on the city's Mittlerer Ring road. Our share in the to BAUER Spezialtiefbau GmbH and to SCHACHTBAU project, which is scheduled to run until 2013, is worth NORDHAUSEN GmbH. around EUR 36 million.

After a weak first quarter, resulting largely from bad The other subsidiaries in the Construction segment, which weather conditions in most of our operating regions and operate primarily in Germany, achieved varying perform- from delays to two major projects in Abu Dhabi, the previ- ance. SCHACHTBAU NORDHAUSEN GmbH saw falls in ous year's revenue levels had been surpassed as early as revenues and earnings in its infrastructure works and in its the half-year mark. Whereas the healthy levels of orders mechanical and plant engineering operations, in which it in hand completed during the third quarter drove total operates mainly as a component supplier to BAUER

<<< Foundation work on the site of Cologne University Hospital. The new building will be home to the Cologne Cluster of Excellence in Cellular Stress Responses in Aging-associated Diseases (CECAD). GROUP MANAGEMENT REPORT 22 Trends in the Business Segments

GEOGRAPHICAL BREAKDOWN Europe OF TOTAL GROUP REVENUES – The financial market crisis brought construction activities in CONSTRUCTION SEGMENT Eastern Europe virtually to a standstill. The after-effects are

in EUR million (after deducting Consolidation) still being felt today. We had already reduced our capacities in those countries to a low level at an early stage. We do Germany 176 (29 %) see rather more positive prospects for the future in Eastern Europe. There are once again a number of good opportuni- Africa 51 (9 %) ties for projects in Russia. In 2010 our Russian capacities

America 66 (11 %) were well utilized because, among others, we were working on construction projects for the 2014 Winter Olympics in Asia-Pacific, Sochi. Projects in Georgia are also bringing the prospect of Far East & Australia healthy utilization of capacities in 2011. 113 (19 %)

We were faced by very variable conditions on the construc- tion markets of Western Europe over the past year. Positive trends were seen above all in Switzerland and Great Britain. In London, we have been working since mid-2010 on the renovation of one of the city's busiest underground stations, Tottenham Court Road. The contract is worth around EUR 15 million. Prospects for 2011 in Great Britain remain good. By contrast, our revenues in countries such as Ireland, Spain EU excl. Germany 37 (6 %) and the Netherlands fell. Our subsidiary in Austria performed Middle East & Central Asia below budget after experiencing an up-and-down year. Europe (other) 44 (7 %) 112 (19 %) Generally speaking, the individual markets in Western Europe again proved highly dependent on their respective Maschinen GmbH. Trends in tunnelling and bridge-building levels of support from economic stimulus packages. Risks were also negative, whereas the reconstruction division continue to be posed by the ongoing financing problems continued to develop pleasingly. Growth was also achieved being experienced by a number of EU member-states re- in the mining division. In the environmental technology sulting from their major budget deficits. business, sales of self-developed biogas plants increased further. Middle East & Central Asia The markets of the Middle East were once again major driv- SPESA Spezialbau und Sanierung GmbH slightly outper- ers of sales for BAUER Group companies. While saw formed its budget, attaining the previous year's levels. The massive falls, the other countries in the region remained building renovation business successfully launched over stable. Trends in Abu Dhabi were very positive, thanks in part the last two years – focused in particular on renovating to contracts for the foundations of the Louvre and Guggen- large shopping centres while they remain in operation – heim museums, representing a total value of approximately also offers good opportunities for the future. EUR 34.5 million. We achieved major sales growth in Qatar. This stemmed from various works on the new city centre of The holding Wöhr + Bauer GmbH saw stable performance Doha and from foundation works for rail stations at the inter- over the past financial year, after having successfully com- national airport. Our subsidiary in Lebanon had a positive pleted the large-scale Angerhof project in Munich during year, ending with pleasing growth. the previous year. GROUP MANAGEMENT REPORT 23 Trends in the Business Segments

All in all for our businesses this resulted in revenues around foundation project for a highway near Montreal. Conse- the previous year's levels, though well down on those of quently, our sales and earnings were up here, too. the boom years. We expect the current market level to re- Our subsidiary in Panama did not perform according to main stable in the medium term. plan in 2010. A number of projects were delayed, though they will have a positive effect on sales and earnings in Asia-Pacific, Far East & Australia 2011. We also see interesting opportunities on other mar- The construction markets of the Far East are feeling little kets in the region such as Costa Rica, Colombia and the impact from the economic crisis. We substantially in- Dominican Republic, and so we will be intensifying our ac- creased our sales in the region relative to the previous tivities there. year. The growth came primarily from our businesses in Malaysia and Vietnam. In Kuala Lumpur, our projects in- Africa cluded foundations for city centre office buildings. In Ho In Africa, activities through the year were focused on the Chi Minh City, our local subsidiary installed extensive piled markets in Egypt, Angola and Algeria. Our holding in foundations for a large building complex with a contract Egypt, BAUER EGYPT S.A.E., increased its revenues. value of approximately EUR 12.5 million. We see good We successfully completed a technically very challenging prospects for both countries again in 2011. In Hong Kong, project in Cairo which involved recovering a tunnel bore after a lengthy break due to major weakness in the local machine trapped during the construction of a new under- construction sector, we acquired two new major specialist ground railway line. Other large-scale projects in and foundation engineering projects, with a total contract value around Cairo also delivered good results. New projects of approximately EUR 34 million, in the last quarter of and opportunities are continually arising across the rest of 2010. The local government has recently launched an Africa. extensive programme to develop the area's transport infrastructure, following several years in which no major We regard a particularly positive aspect of the global con- projects were undertaken. We recorded slight growth in struction business as being the large number of major Indonesia and the Philippines. After completing a very specialist foundation engineering projects on markets in all large project in Brisbane, our revenues and earnings in regions. One of the largest projects is the remediation of a Australia in the year under review were in line with budget, dam in Iraq requiring extensive engineering works to a despite seeing a fall. value in the billion euro range. The final contract award remains pending. Thanks to the increase in construction activity and the dy- namic growth in countries such as China (including Hong We see major benefit through our presence in very many Kong) and India, we expect to see a positive trend overall different countries around the world. We are also continu- in the Far East. ing to work on opening up new markets for our construc- tion companies. Thanks to our network structure, and our America flexibility in deploying personnel and equipment, we are Markets in America were stable. In the USA, however, we able to respond rapidly to opportunities as they arise and gained little benefit from the economic stimulus packages. utilize them to deliver further growth to our business. Our sales and earnings grew overall thanks to the ongoing dam sealing works on Lake Okeechobee in Florida, which are scheduled to run for several years. In 2010 we were awarded two further segments of the project, worth around EUR 47.6 million in total. This will provide us with a healthy level of capacity utilization beyond 2011. In Canada, we successfully completed a complex and challenging bridge

GROUP MANAGEMENT REPORT 25 Trends in the Business Segments

EQUIPMENT SEGMENT

EQUIPMENT SEGMENT KEY FIGURES

in EUR '000 2009 2010 Change

Total Group revenues * 608,477 581,682 -4.4 % of which external sales revenues 456,468 469,252 2.8 % Orders received * 485,878 607,577 25.0 % Orders in hand * 114,068 139,963 22.7 % EBIT 51,306 48,283 -5.9 % Net profit or loss 24,966 20,900 -16.3 % Employees (on average over the year) 2,739 2,775 1.3 %

* Previous year figures adjusted (for explanation see footnote on page 130)

The toughest market conditions encountered during the falls in sales. This trend had the opposite effect in the sec- year under review were, as expected, in the machinery ond half of 2010, so that at the year-end revenues had de- manufacturing sector. The Equipment segment saw a 4.4 clined only by a small amount compared to 2009. percent decline against the previous year (EUR 608.5 mil- lion) to EUR 581.7 million. Segment EBIT fell by 5.9 percent Looking at the markets for our machinery, there are very to EUR 48.3 million (previous year: EUR 51.3 million). The wide variations around the world: net profit for the period (after tax) fell from EUR 25.0 million in the previous year to EUR 20.9 million. Germany & Europe In Europe, especially in Germany and the other EU member- When the construction sector is in decline, sales of con- states, our sales fell significantly. Our subsidiaries MAT Mis- struction machinery fall by a disproportionately large chanlagentechnik GmbH and TracMec Srl. – which operate amount as a result. This was particularly marked in Europe primarily as component suppliers to BAUER Maschinen during 2010. Moreover, in the wake of a crisis customers GmbH – were also affected by the lower demand for stan- are reluctant to invest in new equipment. This is primarily dard equipment and the resultant need to cut production. true of small and medium-sized construction companies Overall, however, the subsidiaries which had suffered much who usually work with standard equipment of smaller size. earlier from the crisis than the parent company in terms of This product group was therefore particularly badly hit by reduced sales of their specialist equipment proved to be the the crisis. By contrast, demand for the large machinery de- units which succeeded in returning to healthy sales growth. ployed on technically complex projects was relatively sta- Thus the performance of KLEMM Bohrtechnik GmbH, ble. And there are still projects of this kind to be acquired RTG Rammtechnik GmbH, EURODRILL GmbH, PRAKLA on the market. Bohrtechnik GmbH and Olbersdorfer Guß GmbH was satis- factory. In some cases their sales were up on 2009 levels. The trend in machinery sales must be measured relative to the previous year. Whereas the first half of 2009 had prof- SPANTEC Spann- & Ankertechnik GmbH, which manufac- ited from still very high levels of orders in hand from the tures and sells pressure grouting anchors for specialist foun- boom years, the second half of the year was markedly af- dation engineering applications, had an excellent year. We fected by the crisis, with orders and sales declining signifi- have been strongly focused on the strategic development of cantly. It was only by the year-end that the period for which this business. By the end of the year it had already surpassed orders in hand were available had stabilized again, at a our medium-term targets, with sales almost tripled and very mere two and a half months. As a result 2010 began at a healthy earnings. We see further good opportunities in this very low level, and this was reflected in severe year-on-year business, though this will necessitate investment in produc-

<<< A highlight at the Bauma fair in Munich was the new fully hydraulic foundation crane MC 128 from Bauer. The base carrier was presented together with a trench cutter for 150 metres depth. GROUP MANAGEMENT REPORT 26 Trends in the Business Segments

GEOGRAPHICAL BREAKDOWN Middle East & Central Asia OF TOTAL GROUP REVENUES – The markets of the Middle East performed adequately in EQUIPMENT SEGMENT financial 2010. Sales were down against the previous year.

in EUR million (after deducting Consolidation) Demand for our equipment was particularly high where construction markets were lively, such as in Abu Dhabi, Germany 82 (15 %) Saudi Arabia and Qatar. We reduced our activities in Dubai down to levels appropriate to local market condi- Africa 7 (1 %) tions. In 2010 we began opening up new markets in Central Asia such as India, Azerbaijan, Kazakhstan and America 84 (16 %) Uzbekistan, where there is great potential in both the infrastructure and industrial construction sectors. We achieved some initial successes, though we do need to adjust more closely to local market conditions. In India, we opened sales offices in Delhi, Mumbai and elsewhere, as well as driving forward the expansion of our equipment service network in the country.

Asia-Pacific, Far East & Australia The Far East was our most important and most success- ful selling market in the year under review. Sales on Asia-Pacific, Far East & Australia some markets more than doubled compared to the pre- EU excl. Germany 137 (26 %) vious year. Driven by the major construction activity in 89 (17 %) Middle East & countries such as China, Singapore, Hong Kong, Central Asia 38 (7 %) Malaysia, Indonesia and Vietnam, where numerous Europe (other) 96 (18 %) large-scale infrastructure projects commenced, Bauer machinery manufacturing operations profited from the company's strong market presence. Japan was also a tion capacities, as the growth achieved so far has already good market in 2010. The BAUER Far East Group sig- stretched them almost to their limits. nificantly increased its revenue and profit, making a substantial contribution to overall Group earnings. Pro- The new group acquisitions in 2009 – HAUSHERR System duction capacities at our plants in Shanghai and Tianjin Bohrtechnik GmbH, which makes blast-hole drilling rigs, in China were fully utilized. Every machine built was and ABS Trenchless GmbH, which manufactures equip- shipped immediately to its customer. Investment needs ment for horizontal drilling – performed well down against to be made in expanding existing capacities there in their planned revenues and earnings. order to share in ongoing market growth.

In the rest of Europe machinery sales increased, espe- Australia performed according to plan in the year under cially in Russia. After a difficult first half of the year, in review. Now that the large mining companies have re- which we were forced to cut production at our plant in sumed their activities, we expect to see an improvement Kurgan, we recovered strongly over the second half. Our in market conditions. sales in Russia profited particularly from the extensive con- struction activity in relation to the 2014 Winter Olympics in America Sochi. Of the more than 100 rotary drilling rigs working at The market in the USA stabilized in 2010. Our subsidiaries the location in difficult ground conditions, more than half there were able to more or less meet their targets. Having are from Bauer. experienced a difficult 2009, BAUER-Pileco, Inc. had a GROUP MANAGEMENT REPORT 27 Trends in the Business Segments

much better year this time around, increasing its sales and marketing efforts – which we maintained throughout the delivering earnings according to plan. crisis – will reap rewards. The new products are opening up interesting prospects for us over the coming years. In response to the crisis, production at the BAUER Manu- facturing Inc. plant in Conroe, north of Houston, Texas, At Bauma, the world's largest construction machinery commenced only slowly. Although production is now run- trade fair held in Munich in April 2010, we presented a ning more positively, the plant is not yet profitable. This is large number of new developments. Outstanding among likely to remain the case – though to a lesser extent – in the them were the BG 50, the largest mobile pile-driving rig following year too. We are nevertheless fully committed to ever built, and a trench cutter mounted on our self-devel- our strategy of locating production in the dollar zone. It is oped crane base carrier MC 128 for depths down to 150 the only way in which we can minimize exchange rate risk metres. During the event we also invited many interested and open up new market opportunities in the USA and customers to visit our home base in Schrobenhausen, South America. Moreover, the plant is located at the heart of about 80 kilometres from the trade fair site, where, in addi- the oil and gas industry around Houston. tion to the deep drilling rigs, we were able to demonstrate our new drilling rig operator training facility. This is the first The Canadian market has picked up following the resump- facility in Germany to conduct testing in order to issue tion of mining activities, leading to new opportunities for us drilling rig operator permits. We were thoroughly pleased too – though at a low level. with the fair, and with the very good response we received from our customers – particularly so as the start of the The markets in South America, such as Brazil, Venezuela and event had been very slow due to the flight restrictions im- Chile, offer great potential for our business. These markets are posed following the Icelandic volcano eruption. currently undergoing dynamic new growth. We are strength- ening our selling activities in the region; the year under review In order to tailor our processes and structures even more was a good one already, with some pleasing sales. closely to the needs of our customers, we reorganized our sales units. Among other measures, we established new Our engineers have been working intensively in recent years sales groups for the Africa, South America and Central on entry into deep drilling techniques. Following extensive Asia markets. testing, the two deep drilling rig models TBA 200 and TBA 300 – usable for oil and gas drilling as well as for geother- All in all, the performance of the Equipment segment was mal energy extraction – are ready for market. They feature very severely affected by the crisis. Despite a number of innovative technology which has also been widely praised positive signs, markets have not yet fully recovered. Except by experts in the field. However, the market launch is prov- for the plants in China, our facilities worked at only 60 per- ing difficult, particularly as markets were generally rather cent capacity on average over the past year. By cutting depressed in the year under review. No sales of the TBA down the numbers of temporary staff deployed, we were 300, which is capable of drilling down to depths of around able to keep our permanent employees fully in work, thereby 4,000 metres, were made in the year under review. In one retaining their valuable know-how. Our new and recently case a customer was unable to fulfil a signed contract due modernized plants, together with our new products, offer to financing problems. major opportunities for our machinery manufacturing com- panies to prosper as the economy picks up. In our machinery manufacturing business our focus in fu- ture will remain on the development of additional new prod- ucts. We profited very strongly from the global boom in the years prior to the financial crisis, and only new products will enable us to regain the sales levels of the boom years in future. We are confident that our major development and

GROUP MANAGEMENT REPORT 29 Trends in the Business Segments

RESOURCES SEGMENT

RESOURCES SEGMENT KEY FIGURES

in EUR '000 2009 2010 Change

Total Group revenues * 174,302 177,744 2.0 % of which external sales revenues 152,003 156,398 2.9 % Orders received * 191,297 201,557 5.4 % Orders in hand * 96,920 120,733 24.6 % EBIT 5,997 8,075 34.7 % Net profit or loss 3,105 5,298 70.6 % Employees (on average over the year) * 953 1,019 6.9 %

* Previous year figures adjusted (for explanation see footnote on page 130)

In the past financial year the Resources segment increased tivity and expand the product range for our customers. The its total Group revenues slightly, by 2.0 percent to EUR new products include fibre-glass reinforced plastic tubing 177.7 million (previous year: EUR 174.3 million). Segment systems for use as industrial pipelines at great depth (for oil, EBIT of EUR 8.1 million increased significantly (previous gas or geothermal energy applications). year: EUR 6.0 million). Net profit for the period rose from EUR 3.1 million in the previous year to EUR 5.3 million. The Materials division is expected to see growth in 2011 thanks to new products and based on a number of large The Resources segment provides products and services in international projects. A major contract to construct solar- the fields of water, energy, mineral resources and environ- powered hand-operated drinking water pumps in Ghana will mental technology. It is divided into three divisions: Materials, provide good basic utilization of capacities. The division will Exploration and Mining Services, and Environment. also profit from major contracts in Jordan, involving the sup- ply of large quantities of well engineering materials. Materials division The Materials division is focused on the development, manu- Exploration and Mining Services division facture and sale of products made of high-grade materials for The Exploration and Mining Services division, which provides the exploration, extraction and distribution of water. Another services to mine operators and exploration companies and area of focus is in the manufacture and sale of products for carries out exploratory and well drilling, showed discernible the utilization of geothermal energy. The long winter in Ger- signs of recovery in the latter months of the year under re- many meant that fewer well construction projects were view. This division was the worst-hit of all the Group's busi- started, or that some of these projects were delayed. Since ness units at the start of the crisis. As raw material prices the mining industry is also a key buyer of our materials, the rose, however, the mining companies resumed their invest- severe market fluctuations in that sector had a negative effect ments in projects for the future. Responding in a flexible way on our business. Overall, this meant that we were unable to to these dynamic markets is a major challenge for our world- fully meet our growth targets. wide businesses.

As well as at production facilities in Germany, the GWE In early April 2010 a major contract with a value of some Group also manufactures materials in Poland, Pakistan and EUR 35 million was acquired in Jordan. A well field is being Hungary. With the already completed and planned upcom- sunk in the south of the country which over the coming ing plant modernization projects – particularly the expansion decades will supply the capital Amman and other cities with of our subsidiary in Poland and a new build at the Nord- drinking water. The project start was delayed, impacting on hausen location – we are aiming to further improve produc- revenue levels, so we were a little down against budget in

<<< Resources subsidiary BAUER Technologies South Africa Ltd. executed six exploratory bores for an open-cast diamond mine in Sierra Leone. GROUP MANAGEMENT REPORT 30 Trends in the Business Segments

GEOGRAPHICAL BREAKDOWN Australia and Canada made positive progress, despite diffi- OF TOTAL GROUP REVENUES – cult market conditions. Subsidiary FORALITH Holding AG, RESOURCES SEGMENT a specialist in deep exploratory drilling based in Switzerland,

in EUR million (after deducting Consolidation) increased its revenues and earnings.

Germany 81 (47 %) Our branch operation in South Africa relocated its head- quarters from Cape Town to Johannesburg during the re- Africa 12 (7 %) porting period, so as to be closer to our customers. America 5 (3 %) Asia-Pacific, Far East & Australia Environment division 2 (1 %) The Environment division focuses on the treatment of soil, water and air, on industrial process water and waste water and on drinking water treatment. We are generally satisfied with the development of the division in the year under review. In Germany, the government's economic stimulus packages mainly generated investment in new-build projects and mod- ernization of public buildings, as a result of which pollution remediation work became less prominent. Pollution remedia- tion work in the industrial sector was very slow at the start of the year; many projects were postponed. As a result, BAUER Middle East & Umwelt GmbH was unable to achieve its planned sales. It Central Asia 54 (31 %) should, however, profit from the healthy levels of orders in Europe (other) hand in financial 2011. The acquisition of a soil treatment 5 (3 %) centre in Hamburg enabled us to expand our disposal busi- ness so that we now cover almost the whole of Germany. EU excl. Germany 13 (8 %)

Schrobenhausen-based company Esau & Hueber GmbH, this area of the business. Another major contract was ac- which we acquired in 2008, delivered good performance in quired in Jordan at the end of the third quarter of 2010, to the year under review. Building on its core specialism in the sink wells for a phosphate treatment plant down to a depth beverages industry and in clean media, the company is now of 2,000 metres. This will bring in some EUR 20.1 million in also a leading specialist in the treatment of water. Its sales revenue. Consequently, we can already see at this stage that fell slightly compared to the previous year. capacities on that market will be very well utilized over the next two years. Despite the difficult economic situation in Europe, the sub- sidiaries of BAUER Resources GmbH continued to make The Jordanian-based Site Group for Services and Well positive progress. We generated healthy sales in Spain and Drilling Ltd. Co., in which Bauer acquired a majority share in Italy, whereas business in Great Britain was somewhat 2009, had a very good year in terms of revenues and earn- weaker. We cut back the operations of our branch in Hun- ings. It carries out deep drilling for water, oil and gas, as well gary in line with the market decline. Our operations in the as exploratory large-diameter drilling operations. The com- Middle East, particularly in Abu Dhabi, made very pleasing pany's strong market presence in the Middle East is a major progress. We were able to gain additional market share, and benefit, and the two large-scale projects will secure healthy our capacities are already well booked-up for 2011. We order books over the long term too. The newly established successfully presented ourselves primarily as a provider of subsidiary in Ghana performed satisfactorily. Although it had water treatment services and a vendor of complete plant not yet completed a full year in business, it made a healthy solutions. We envisage that markets in the Environment divi- contribution to revenues and earnings. The companies in sion will generally remain stable. GROUP MANAGEMENT REPORT 31 Trends in the Business Segments

Our BOT (Build, Operate and Transfer) project in Oman, in numbers of new companies were established and acquisi- particular, made very good progress. We were contracted tions made. In 2011 again, the segment will primarily seek to to build and operate a biologically based treatment plant utilize synergies across its three divisions. The Resources to clean contaminated process water from oil wells. The segment offers a complete package of water-related services plant was completed in late 2010, and ran up to full per- – from exploration, through extraction and treatment, to formance after just a short time. We expect to generate cleaning of waste water and sewage. We are looking to healthy income from its operation over the next 20 years. strengthen our presence in the Middle East especially, as well In February of the current year we agreed an expansion of as opening up new markets in Africa and South America. capacity with the customer. After being upgraded, the plant will be able to handle twice its current volumes of With healthy sales and much-improved earnings, in the year process water. Based on our successful operation of the under review the Resources segment followed on success- first such large-scale treatment plant of its kind, we can fully from 2009. Unfortunately, delays to a number of projects now press on with marketing our expertise in other parts meant that our revenues did not reach the planned levels. On of the world. the other hand, the very healthy trend in orders in hand makes it likely that the segment will continue to grow in The focus of efforts in the Resources segment in financial 2011. This reaffirms our long-term strategy aimed at making 2010 was on consolidating its business, because large the segment a key pillar of the Group's business.

< It is not always about extracting raw materials: The Canadian Resources subsidiary sank passive dewatering wells in a copper <

< mine in British Columbia.

GROUP MANAGEMENT REPORT 33 Trends in the Business Segments

BREAKDOWN OF TOTAL GROUP REVENUES ACROSS THE MEMBER COMPANIES OF THE BAUER GROUP

Shareholdings < 50 % listed pro rata

in EUR million 2009 2010 BAUER Spezialtiefbau GmbH Group BAUER Spezialtiefbau GmbH, Schrobenhausen, Germany (BST) 203.9 178.4 Wöhr + Bauer GmbH, Munich, Germany (33 % share) 9.0 11.4 COASTAL CAISSON CORP., Odessa, United States of America 23.9 18.3 BAUER FOUNDATION CORP., Odessa, United States of America 9.3 15.9 BAUER FUNDACIONES PANAMÁ S.A., Panama City, Panama 5.3 5.6 BAUER Foundations Canada Inc., Calgary, Canada 18.8 23.5 BAUER Funderingstechniek B.V., Mijdrecht, Netherlands 8.1 4.0 BAUER Technologies Limited, Beverley, Great Britain 11.7 8.9 BAUER Foundations (IRL) Ltd., Dublin, Ireland 3.8 1.2 BAUER Spezialtiefbau Schweiz AG, Baden, Switzerland 13.9 17.7 BAUER Fondations Spéciales S.A.S., Strasbourg, France 5.8 0.1 TERRABAUER, S.L., Madrid, Spain (30 % share) 15.3 8.0 BRK-Speciális Mélyépitö Kft., Budapest, Hungary 5.4 4.9 BAUER ROMANIA S.R.L., Bucharest, Romania 3.1 3.4 BAUER BULGARIA EOOD, Sofia, Bulgaria 3.7 2.2 BAUER SPEZIALTIEFBAU Gesellschaft m.b.H., Vienna, Austria 14.3 12.9 BAUER EGYPT S.A.E. Specialised Foundation Contractors, Cairo, Egypt 23.2 39.2 BAUER LEBANON FOUNDATION SPECIALISTS S.a.r.L., Beirut, Lebanon 14.4 17.6 BAUER International FZE, Dubai, 54.0 60.2 BAUER International Qatar LLC, Doha, Qatar 9.2 37.9 Saudi BAUER Foundation Contractors Ltd., Jeddah, Saudi Arabia 11.0 7.6 BAUER (MALAYSIA) SDN. BHD., Petaling Jaya, Malaysia 29.2 37.5 BAUER Foundations Australia Pty Ltd., Brisbane, Australia 17.0 9.3 BAUER Hong Kong Limited, Hong Kong, People's Republic of China 3.0 3.4 BAUER Vietnam Ltd., Ho Chi Minh City, Vietnam 6.0 27.1 BAUER Foundations Philippines, Inc., Quezon City, Philippines 6.2 10.3 P.T. BAUER Pratama Indonesia, Jakarta, Indonesia 11.8 12.6 Thai BAUER Co. Ltd., Bangkok, Thailand 4.9 7.1 Other participations (Bauer share only) 29.5 33.5 Joint ventures, Germany (Bauer share only) 1.9 2.0 Intra-Group sales -74.4 -72.7 BST Group total ** 502.2 549.0 SCHACHTBAU NORDHAUSEN GmbH Group SCHACHTBAU NORDHAUSEN GmbH, Nordhausen, Germany (SBN) 123.1 104.6 SBN participations 8.6 19.0 Intra-Group sales -53.9 -38.2 SBN Group total 77.8 85.4 SPESA Spezialbau und Sanierung GmbH, Schrobenhausen, Germany (incl. SPESA Korrosionsschutz und Beschichtungen GmbH, Nordhausen less intra-Group sales) 14.4 14.5

<<< Bauer Funderingstechniek executed 64 temporary anchors to hold the sheet pile wall for the cooling water inlet at the new E.ON power station in the Maasvlakte district of Rotterdam. In the second construction phase, working from two pontoons in the exca- vated pit, 368 GEWI piles were installed to provide protection against uplift and as foundations.

GROUP MANAGEMENT REPORT 35 Trends in the Business Segments

BREAKDOWN OF TOTAL GROUP REVENUES ACROSS THE MEMBER COMPANIES OF THE BAUER GROUP (CONTINUED)

in EUR million 2009 2010 BAUER Maschinen GmbH Group BAUER Maschinen GmbH, Schrobenhausen, Germany (BMA) 465.6 377.9 EURODRILL GmbH, Drolshagen, Germany 6.2 7.7 KLEMM Bohrtechnik GmbH, Drolshagen, Germany 36.5 35.6 MAT Mischanlagentechnik GmbH, Immenstadt, Germany 12.4 11.2 BAUER Mietpool GmbH, Schrobenhausen, Germany 4.2 0.2 Olbersdorfer Guß GmbH, Olbersdorf, Germany 6.7 8.0 PRAKLA Bohrtechnik GmbH, Peine, Germany 23.5 14.0 RTG Rammtechnik GmbH, Schrobenhausen, Germany 25.7 22.4 SPANTEC Spann- & Ankertechnik GmbH, Schrobenhausen, Germany 4.2 13.9 TracMec Srl., Mordano, Italy 8.9 8.8 BAUER Macchine Italia s.r.l., Mordano, Italy 6.4 4.9 BAUER EQUIPMENT UK LIMITED, Rotherham, Great Britain 5.3 4.6 BAUER Casings Makina Sanayi ve Ticaret Limited Sirketi, Ankara, Turkey 3.6 3.6 BAUER Technologies Far East Pte. Ltd., Singapore, incl. subsidiaries 81.3 112.5 NIPPON BAUER Y.K., Tokyo, Japan 3.5 6.9 BAUER Manufacturing Inc., Conroe, United States of America 8.8 13.0 BAUER-Pileco Inc., Houston, United States of America 38.9 52.2 OOO BAUER Maschinen - Kurgan, Kurgan, Russian Federation 7.6 5.6 Other participations 14.2 18.8 Intra-Group sales -163.9 -158.2 BMA Group total ** 599.6 563.6 BAUER Resources GmbH Group BAUER Resources GmbH, Schrobenhausen, Germany (BRE) 6.6 7.4 GWE pumpenboese GmbH (formerly pumpenboese gmbh & co. kg), Peine, Germany 53.3 53.1 SBF-Hagusta GmbH, Peine, Germany 7.2 5.8 Pol-Bud Technologia Wody Sp.z.o.o., Lodz, Poland 2.5 2.0 PESA ENGINEERING, S.A., Madrid, Spain 1.1 1.0 FORALITH Holding AG, St. Gallen, Switzerland, incl. subsidiaries 2.6 4.6 BAUER Resources GmbH / Jordan Ltd. CO, Amman, Jordan, incl. subsidiaries 9.3 19.1 BAUER Technologies South Africa (PTY) Ltd., Cape Town, South Africa, incl. subsidiaries 5.5 6.6 BAUER Resources Canada Ltd., Edmonton, Canada, incl. subsidiaries 2.7 2.7 BAUER Umwelt GmbH, Schrobenhausen, Germany * 36.2 21.3 FWS Filter- und Wassertechnik GmbH, Dunningen, Germany 13.3 7.3 Esau & Hueber GmbH, Schrobenhausen, Germany 8.9 8.0 BAUER Nimr LLC, Maskat-Al-Mina, Sultanate of Oman 0.0 25.7 Other participations 31.4 16.2 Intra-Group sales -21.8 -18.5 BRE Group total ** 158.8 162.3 BAUER Aktiengesellschaft, Schrobenhausen, Germany (BAG) 58.0 32.7 Other participations 1.5 1.9 Intra-Group sales -136.5 -105.4 GROUP TOTAL 1,275.8 1,304.0

* In the segment reporting set out in the Notes to the financial statements, BAUER Umwelt GmbH is assigned by virtue of the nature of its business operations to the Resources segment; the shares had not been legally transferred by the closing date. ** In contrast to the breakdown of total Group revenues by subsegment, in the breakdown of total Group revenues between the companies the total of the individ- ual groups is stated after consolidation.

<<< Bauer's Asia-Pacific network extends from India to New Zealand. It includes a specialist foundation engineering subsidiary in Indonesia, here working on foundations in Jakarta.

GROUP MANAGEMENT REPORT 37 Trend in Orders Received

IV. TREND IN ORDERS RECEIVED

ORDERS IN HAND / ORDERS RECEIVED BY SEGMENT

in EUR '000 2009 2010 Orders in hand, referred to 2010 total Group revenues, In hand Received In hand Received in months Construction * 297,959 512,972 354,240 671,684 6.9 Equipment * 114,068 485,878 139,963 607,577 2.9 Resources * 96,920 191,297 120,733 201,557 8.2 Intra-Group revenues and IFRS adjustments 0 -77,019 0 -70,812 --- Total 508,947 1,113,128 614,936 1,410,006 5.7

* Previous year figures adjusted (for explanation see footnote on page 130)

At the 2010 year-end, the Group held orders in hand to- • Hong Kong: The construction of excavation pits with di- talling EUR 614.9 million, 20.8 percent up on the previous aphragm walls for a railway project has a contract value of year's figure. Following the severe falls of the previous EUR 34.0 million. year due to the financial crisis, orders in hand had recov- ered discernibly by the half-year mark across all segments. • Vietnam: Large excavation pit projects in Hanoi and Ho These levels were sustained through to the year-end, Chi Minh City have been commissioned with a remaining which leads us to expect a rise in revenues in 2011. value of EUR 21.8 million.

Order books in the Construction segment were boosted In many other countries we have orders in hand which have primarily by international sales. Orders in hand in the spe- already covered much of the planned revenues for the cur- cialist foundation engineering business in Germany fell by rent year. They provide a sound foundation for further growth 22.0 percent to EUR 47.4 million. The contract on the in business volumes. Mittlerer Ring in Munich failed to generate additional new business of the same kind. We therefore expect that rev- The construction division of SCHACHTBAU NORDHAUSEN enues in Germany will be somewhat reduced. By contrast, GmbH has orders in hand totalling EUR 24.0 million, down the orders in hand of BAUER Spezialtiefbau GmbH sub- 11.3 percent against the previous year's level. Orders in sidiaries internationally increased by a very substantial hand at SPESA Spezialbau und Sanierung GmbH totalling 42.4 percent to EUR 271.9 million. The largest contracts EUR 4.1 million are well down against the previous year, were generated in the following countries: though the 2009 level was particularly high. The two compa- nies reflect the current situation on the German construction • USA, Florida: The still to be realized value of expanded market. We nevertheless forecast that both will meet their tar- dyke remediation works on Lake Okeechobee was gets in 2011. There are large numbers of projects on the mar- EUR 47.6 million at the year-end. This is backed by ket which back up this prediction. large numbers of smaller projects. In the Equipment segment, the orders in hand of EUR 140.0 • Switzerland: A number of large projects to a total value million are 22.7 percent up on the previous year. These levels of EUR 40.5 million. indicate that markets have stabilized. They also demonstrate, however, that no rapid return to the boom levels of 2008 is • Abu Dhabi and Qatar: We are working on contracts to be expected in the construction machinery business. We worth EUR 35.6 million. forecast further growth in 2011, which may be additionally boosted by our new products, including the deep drilling rigs.

<<< The new Bauer BG 50 is the most powerful drilling rig in the BG series. It is currently being deployed in Miami harbour. The development was instigated by US customer Malcolm Drilling. GROUP MANAGEMENT REPORT 38 Trend in Orders Received

In the Resources segment, orders in hand increased by the positive effects from the acquisition of major contracts 24.6 percent to EUR 120.7 million. Major contracts from in Africa. The other companies also for the most part Jordan to sink wells (with total remaining values of around have healthy levels of orders in hand, so we are well set EUR 55.1 million) and the large project in Oman (with a to achieve our planned growth. remaining contract value over the next five years of EUR 19.5 million) provide a sound basis for the future. The With regard to the Group as a whole, orders in hand are in Materials division began the new year with orders in hand line with our forecast for growth in the current year. totalling EUR 17.9 million (up 84 percent). This reflects

< Numerous Bauer piles and anchors and several hundred metres of diaphragm wall provide the foundation for the new passenger <

< rail terminal at Qatar Airport. GROUP MANAGEMENT REPORT 39 Earnings, Financial and Net Asset Position

V. EARNINGS, FINANCIAL AND NET ASSET POSITION

EARNINGS There have been marked changes to the income state- The Group's 2010 earnings stabilized at slightly below the ment in the year under review owing to the ongoing im- previous year's levels. Net profit for the period decreased pact of the economic crisis. The consolidated revenues of by 5.3 percent to EUR 39.8 million. This reflected a very EUR 1,255.6 million, up slightly from the previous year's weak first half of the year under the impact of the financial EUR 1,226.0 million, reflect differing relative trends in the crisis, with a marked recovery in the second half. three segments. This results in significant shifts between the individual income statement items. The pre-tax return on equity as the ratio of pre-tax profit to shareholders' equity (equity at the start of the period) de- These shifts have resulted in the following changes, creased slightly against the previous year to 14.3 percent among others, being made to the structure of our Group (previous year: 16.0 percent). The return on equity after tax companies: was 9.9 percent (previous year: 11.3 percent). The return on sales after tax (relative to the consolidated income • The Construction segment increased its revenues, statement revenues) declined from 3.4 percent to 3.2 per- whereas revenues in the Equipment segment fell sub- cent year-on-year. Compared to other German companies stantially. As the segments have very different cost in our industry, these figures are still in a very satisfactory structures, the weighting in the individual income state- range. We expect to be able to increase our returns again ment items changed accordingly. in the coming years. • The Equipment segment continued the trend relative to The net debt to EBITDA and EBITDA to net interest cover- the previous year of substituting the deployment of tem- age ratios, which are of great significance to rating agen- porary staff and component purchasing with in-house cies, likewise worsened somewhat. These ratios are, production by company employees. These measures, however, still at a healthy level, so that the covenants for which preserve the know-how contributed by our out- our finance remain at no risk. Rating agency Standard & standingly skilled employees, resulted in a shift in costs Poor's reaffirmed our rating at BB+ outlook stable in from cost of materials to personnel expenses. March 2011. • Owing to the major capital investment programme of DEVELOPMENT OF COVENANTS recent years, necessitated by the company's strong sales growth during the boom period, depreciation of 2009 2010 fixed assets has risen very sharply. This item also re- Net debt / EBITDA * 2.84 3.14 flects the trend in our construction business in that ever EBITDA / net interest coverage * 5.53 5.12 larger – and thus more expensive – equipment is re- * Previous year figures adjusted (for explanation see footnote on page 130) quired to handle modern-day construction projects. The investment intensity of our business is therefore rising The reported earnings led to a slight change in all other in- significantly, leading to a shift in costs towards deprecia- come-related key performance indicators. EBIT increased tion, amortization and impairment. by 4.7 percent, from EUR 84.4 million to EUR 88.4 million. This rise reflects the slight improvement in operating per- For these reasons, the cost categories shown in our formance of our business, countered by the burdens aris- Group's income statement bear little comparison to those ing from increased financing requirements. EBITDA likewise of previous years. The individual items are briefly summa- increased slightly, by 5.2 percent from EUR 157.4 million to rized in the following. EUR 165.5 million. The previous year comparative figure was also adjusted slightly, as a result of a transfer relating A pleasing aspect of the income statement is the develop- to write-downs due to use. EBITDA thus attained a still ment of sales revenues. They rose by 3.2 percent against healthy level of 13.2 percent (previous year: 12.8 percent) the previous year (EUR 1,096.5 million) to EUR 1,131.7 of consolidated revenues. million. GROUP MANAGEMENT REPORT 40 Earnings, Financial and Net Asset Position

The "Changes in inventories" item has increased signifi- ment segment also reflected the higher fixed cost burden of cantly. The "Other capitalized goods and services for own a decline in business during the crisis. As we expect to be account" item mainly reflects the equipment acquired by able to increase our equipment sales performance strongly our construction companies from the production of the again in the coming years, we did not cut back our sales BAUER Maschinen Group. The figure was reduced against and development staff. The development function was even the previous year by EUR 40.8 million to EUR 30.3 million expanded slightly, in order to meet the increased challenges as planned. of the future. Short-time working due to the crisis played an insignificant role in the year under review. The "Other income" increased significantly against the previ- ous year from EUR 37.6 million to EUR 57.4 million. The The substantial increase in depreciation of fixed assets is items almost without exception relate to operations. Key line the result of our capital investment programmes of recent items in this context are the realized and unrealized foreign years and the addition of very expensive large-scale special- currency gains totalling EUR 18.7 million (previous year: ist equipment to the equipment portfolio of our construction EUR 12.7 million), which are set against the corresponding business. The income statement for the first time includes a foreign currency losses under Costs. Foreign currency gains new item: "Write-downs of inventories due to use". This was of around EUR 7.1 million were posted in total. The unbal- pursuant to a recommendation from the Deutsche Prüfstelle anced statement is in line with IFRS rules reflecting the für Rechnungslegung (German Financial Reporting Enforce- practice that exchange rate hedging cannot always be set ment Panel). In previous years this item was included under exactly against the underlying transactions, even though in "Depreciation and amortization". The new item relates to the operational reality they are aligned as closely as possible to write-downs we apply to equipment made available on a each other. The Group's objective is to undertake exchange hire basis specifically to our equipment customers. This rate hedging which rules out the possibility of foreign cur- equipment does not form part of the fixed assets, but is rec- rency gains or losses as far as possible. Other key items ognized under Inventories. The reason for this approach is under "Other income" are book profits on the sale of assets that most of the equipment in question remains within the (EUR 6.5 million), income from the reversal of provisions company only for a relatively short time. The aim of the hire (EUR 4.5 million), income from the reversal of impairment operation is to subsequently sell the equipment under a losses not relating to the Construction segment (EUR 4.9 hire-purchase agreement. As the equipment has to be fi- million) and income from the reversal of liability provisions nanced correspondingly on the Equity and Liabilities side of (EUR 7.4 million). the balance sheet, its depreciation logically forms part of the company's EBITDA. The depreciation of our hire equipment The cost of materials decreased in the year under review decreased against the previous year, as the relevant con- by 2.4 percent. The reasons for this lie in the structural tract offers were less widely taken up by our customers. changes within our Group as described. Very material- Also in line with the lesser utilization of hire equipment ca- intensive areas of the business have been reduced to a pacity and the associated higher levels of new and used greater extent than those which consume less material in machinery inventories, based on our system of depreciation generating revenues. The reduction in temporary workers and amortization the impairment losses on the net realizable has also had an effect in this respect. Price changes have value rose against the previous year by EUR 5.7 million. had little effect. Our machinery production, specifically, reacts only to a minor extent to changes in raw material Looking back today on the investment programmes of re- prices, as the raw material cost component of our very cent years, still very much in the light of the economic crisis high-tech products is relatively small. and the decline in sales, we must of course acknowledge that some of the capacities they created are currently being Personnel expenses rose by a substantial 7.4 percent, utilized to a relatively unsatisfactory degree. Nevertheless, outstripping the rise in consolidated revenues. The rise we do not regret having undertaken the investments. We resulted from increased in-house production and from will incur additional costs because of them for a few years, industry-standard pay rises. Personnel costs in the Equip- and the resultant fixed cost effect will affect earnings, but in GROUP MANAGEMENT REPORT 41 Earnings, Financial and Net Asset Position

the medium term we are sure that we made the right deci- effects again in the coming years. Financial income rose by sions. Having moved into the new workshop facilities, we EUR 1.7 million. Profits on investments totalling EUR 1.4 are seeing significant progress in productivity, despite the million are EUR 2.1 million down against the previous year. cutbacks in production, so some of the additional cost will be recovered even in times of weak sales. Moreover, the Income tax expense increased from 29.4 percent of pre-tax new production facilities – particularly at company head- profit to 30.8 percent. Owing to the very poor economic quarters in Schrobenhausen, in Nordhausen and in Con- situation in some countries, the German companies under- roe, near Houston, Texas – are of strategic importance to took write-offs which were not tax-deductible. Other factors us. The market launch of our deep drilling rigs would not contributing to the higher tax ratio stemmed from additional have been possible without the new facilities. If sales of declines in profits in countries with very low tax rates, as these products are as successful as we anticipate, capacity well as other taxation effects including some resulting from utilization will very quickly be restored to healthy levels. The discrepancies between IFRS and the tax balance sheet new production facilities in the dollar zone will provide us (with regard to deferred taxes). We expect the tax ratio to with major additional security against exchange rate fluc- remain at around 30 percent in future. tuations over the coming years. The minority share in profit rose in the year under review Other operating expenses rose by 10.4 percent. The in- from EUR 3.0 million in the previous year to EUR 4.8 million. crease resulted primarily from energy costs (+ EUR 1.0 The earnings of our subsidiaries in Egypt and Jordan were million), insurance (+ EUR 1.5 million) and other personnel key factors in this. In Egypt especially, outstanding earnings expenses (+ EUR 1.8 million). These cost rises were caused were again generated on a number of major projects. especially by special projects outside of Germany, such as due to working in very remote areas necessitating the es- The company's earnings performance varied across its oper- tablishment of camps including extensive staff facilities, ating segments. In the Construction segment, EBIT rose by catering and accommodation. Additional expenditure of 11.9 percent to EUR 28.8 million. Equipment segment EBIT approximately EUR 5.5 million was incurred for allocation of fell to EUR 48.3 million (previous year: EUR 51.3 million). Our impairment of receivables and for allocations to other provi- Resources segment increased its EBIT to EUR 8.1 million. sions. As explained in the Notes to the financial statements under "Sales revenues", this does not include the alloca- With this Annual Report we have additionally presented the tion of impairment of trade receivables in the Construction progression from segment results to the net result for the segment. The losses from the disposal of fixed assets also period. This approach is in line with our internal reporting increased, by EUR 2.4 million. The "Other operating ex- procedures. The unallocated assets and liabilities of the penses" also include the realized and unrealized foreign previous year have been allocated to the segments. The currency losses totalling EUR 11.6 million, which are set previous year's figures have been adjusted accordingly. The against the corresponding gains under Income. Other in- trend in net results for the period broken down by segment creases resulted from customs duties (+ EUR 1.0 million) is as follows: and bank charges (+ EUR 0.6 million). • Decrease in the Construction segment from EUR 13.1 Financial expenses rose by 18.5 percent to EUR 36.4 mil- million to EUR 10.0 million. lion. The major capital investments in 2008 and 2009, the • Decrease in the Equipment segment from EUR 25.0 mil- financing of the BOT project in Oman and the up-front fi- lion to EUR 20.9 million. nancing of the new deep drilling rigs have likewise led to a • Increase in the Resources segment from EUR 3.1 million substantial increase in the Group's debt. Moreover, the im- to EUR 5.3 million. pact of the crisis has resulted in an increase in working cap- ital. All customers are attempting to conserve their own fi- In the Construction segment, higher income tax expense nances by paying us a little later. These effects led to higher and lower profits from investments led to a decrease in net interest expenditure. We expect to be able to reduce these profit for the period contrary to the increase in EBIT. GROUP MANAGEMENT REPORT 42 Earnings, Financial and Net Asset Position

FINANCIAL AND NET ASSET POSITION • We had originally expected to make the first sale of a With consolidated revenues shown in the income state- TBA 300 deep drilling rig by the end of 2010. This proved ment up only slightly compared to the previous year, the not to be possible owing to the customer's financing Group's net assets rose by 12.9 percent to EUR 1,338 problems, so the balance sheet still includes some EUR million. The equity ratio decreased slightly to 33.2 percent 18 million in machine components. The sale is now most (previous year: 33.9 percent). In view of the major turbu- likely to take place in the second quarter of 2011. The net lence caused to the business by the economic crisis in debt burden will still be retained in future, however, as in- 2009 and 2010, we are satisfied with this figure, which is creasing deep drilling rig volumes will continue to demand above our long-term target. Our general aim is to keep the major up-front financing. equity ratio above 30 percent. All investment plans and the growth of the business are aligned to this target. This • The treatment plant for oil-contaminated water in Oman, strong equity position also means that the Group enjoys a which we will be operating for another almost 20 years, healthy financial and net asset position. The net debt of our could not be financed off-balance sheet for accounting business has increased by 16.0 percent. This substantial reasons. After the concession period the project will be- rise results from the following key factors along with the come the property of the oil company. It is currently rec- self-financing element: ognized on our balance sheet at EUR 45.9 million. This sum will be dissipated over the term of the contract. • Financing volumes increased by approximately EUR 25 million due to on-balance sheet refinancing of previously • The up-front financing of construction projects has in- off-balance sheet inventory finance. creased by approximately EUR 20 million due to slower customer payments in the wake of the crisis. BREAKDOWN OF TOTAL GROUP REVENUES 2010 BY SUBSIDIARY In addition to these factors, the shift in exchange rates

in EUR million (without deduction of intra-Group sales) contributed around EUR 15 million to the increase in net debt. The increase in our financing requirements results Bauer Maschinen from these few very clearly defined and strategically signifi- subsidiaries 344 (20 %) Bauer Resources incl. cant individual projects. Our equity ratio of 33.2 percent subsidiaries 181 (11 %) Bauer Maschinen provides us with plenty of equity cover for this. This would 376 (22 %) Bauer Spezialtiefbau be much higher still if the hidden reserves were included. subsidiaries 443 (26 %) Our financial reporting policy has always been to try to avoid impairment risk arising from goodwill on the balance sheet as far as possible. Consequently, our balance sheet assets include virtually no goodwill. Since changing over to IFRS we have utilized the possibility to value land and build- ings at historical cost. With a carrying amount for the land and buildings of around EUR 200 million, there is a consid- erable reserve here.

Assuming that no acquisitions are made, net debt will rise again slightly in line with our planning during the current Bauer Spezialtiefbau year and then slowly decrease. 178 (11 %)

BAUER AG incl. With regard to the individual items on the balance sheet, Schachtbau Nordhausen subsidiaries 35 (2 %) incl. subsidiaries 124 (7 %) the following key changes should be noted: SPESA 17 (1 %) GROUP MANAGEMENT REPORT 43 Earnings, Financial and Net Asset Position

ASSETS EQUITY AND LIABILITIES Non-current assets Shareholders' equity EUR 554 million (41 %) EUR 444 million (33 %) (2009: EUR 486 million (41 %) (2009: EUR 402 million (34 %)

Current assets Non-current liabilities EUR 756 million (57 %) EUR 448 million (34 %) (2009: EUR 662 million (56 %) (2009: EUR 422 million (36 %)

Liquid funds Current liabilities EUR 28 million (2 %) EUR 446 million (33 %) (2009: EUR 37 million (3 %) (2009: EUR 361 million (30 %)

EUR 1,338 million EUR 1,338 million

On the Assets side: shift in demand on international construction markets • The slight increase in intangible assets resulted primarily means that our construction works require increasingly from the capitalization of development costs of our ma- large machinery and equipment. Consequently, small chinery manufacturing companies. equipment is increasingly being replaced by much larger machinery, leading to an increase in fixed • Land, land rights and buildings increased by EUR 13.4 assets. million. At the same time, payments on account and as- sets in course of construction decreased by EUR 4.8 • For the BOT project in Oman a new balance sheet item million, resulting in a net increase of EUR 8.6 million. The was created: Receivables from concession arrange- key capital investments in this context were: ments. The current figure of EUR 45.9 million will be reduced down to zero over a period of 20 years. - The Conroe plant near Houston, Texas, totalling EUR 3.2 million. This relates primarily to the construction of • We were not able to reduce our raw materials and sup- the paintshop, which could not be completed in the plies expenditure as planned. In fact, it even rose by previous year due to planning delays. EUR 1.0 million. The new boom in the automotive in- - An additional soil treatment centre was acquired for dustry which began last year posed such a challenge BAUER Umwelt GmbH in Hamburg (EUR 0.8 million). to our suppliers that their delivery lead times rose - BAUER Spezialtiefbau GmbH established a new train- dramatically once again, which meant we had to make ing facility costing approximately EUR 0.8 million. significantly higher up-front commitments. The very - For the GWE Group, which manufactures well engi- healthy sales in China also affected this item. neering materials, construction works commenced in Nordhausen and in Poland which are stated under • The "Finished goods and work in progress and mer- "Assets in course of construction" at EUR 2.5 million. chandise" item increased by a substantial EUR 52.3 - Other minor construction projects included service million due to the up-front financing of the deep drilling centres for our machinery business and workshops rigs and to external inventory refinancing. This was al- for the international construction business, as well as ready explained previously. The increase was also due small structures for other business units in Germany. to the fact that some EUR 10.0 million in advances for orders had to be added to the Equity and Liabilities • The EUR 12.0 million increase in technical equipment side of the balance sheet, which meant they could not and machinery related to our construction activities. The be deducted from this figure. GROUP MANAGEMENT REPORT 44 Earnings, Financial and Net Asset Position

• Trade receivables increased by EUR 29.8 million as a • With regard to the distribution of receivables from con- result of the general shift in payment practices. struction contracts and of trade receivables, the reverse is the case. By far the greatest part of this item relates • Other current assets increased by EUR 9.8 million prima- to the Construction and Resources segments. The rily in relation to receivables from consortia and due to a Equipment segment receives payment relatively quickly security deposit outside of Germany. after delivering its products. Payments for construction services are conventionally received much later. In assessing the Assets side of the consolidated balance sheet, it is important to note that this is composed of a These different weightings are barely relevant to inter- Construction element (relating to the Construction and period balance sheet comparisons when the rate of Resources segments) and an Equipment element (relating growth – either positive or negative – of both areas of to machinery manufacturing operations). business is roughly the same.

Some specific items relate almost exclusively to the Con- On the Equity and Liabilities side: struction segment, while others relate only to the Equip- • The shifts in exchange rates had a positive effect on ment segment. The main items of such kinds are listed in shareholders' equity, increasing it by EUR 13.4 million. the following: The amount is included in the "Other revenue reserves".

• Within property, plant and equipment, well over two • The EUR 4.1 million increase in minority interests results thirds of the land, land rights and buildings item relates mainly from the earnings attributable to minority share- to the Equipment segment, whereas around three quar- holders. Most of the total relates to the subsidiary in ters of the technical equipment and machinery item is Egypt. attributable to the Construction segment. • The non-current financial liabilities mostly comprise • Over three quarters of the raw materials and supplies are promissory notes and long-term bank debts (secured by linked to the Equipment segment. Inventories of king piles mortgages). The due dates of the liabilities are spread and sheet piles relate only to the Construction segment. evenly across a lengthy period of time such that the an- nual refinancing relates only to a small portion of them • Some 90 percent of finished goods and work in progress each year. Refinancing was also undertaken in 2010 in relate to the Equipment segment. In this context, it is es- order to safeguard the Group's long-term finance. The sential to successful selling operations to maintain stocks non-current financial liabilities rose by EUR 20.1 million of equipment for hire as part of current assets, so that as a result. customers can try out the machinery before making their final purchasing decision. Equipment can also be drawn • Since the pension schemes of BAUER AG, BAUER from this pool to cover short-term capacity bottlenecks Spezialtiefbau GmbH and BAUER Maschinen GmbH on construction sites. The machinery in production at the have been closed for a number of years now, the increase balance sheet date also represents a very substantial in provisions for defined benefit plans has fallen to a level capital tie-up. The much increased inventories of finished which our Group companies are able to withstand. machines accumulated due to the economic crisis in the previous year were reduced to a reasonable level during • The increased financial necessities on the Assets side of the year under review. Adequate provision has been the balance sheet led to a EUR 45.3 million rise in finan- made for depreciation in the value of inventories. cial liabilities from short-term loans. GROUP MANAGEMENT REPORT 45 Earnings, Financial and Net Asset Positionslage

• Liabilities from construction contracts relate primarily • Trade receivables rose by EUR 48.5 million. This resulted to construction projects on which the payments re- from the general shift in customer payment practices. ceived surpass the work carried out. They increased by EUR 7.8 million. • The receivables from concession arrangements (relating to the BOT project in Oman) of EUR 45.9 million shown • Trade payables increased by EUR 31.1 million following a for the first time as a separate item on the balance sheet significant decrease in the previous year. This increase is were included last year in an amount of EUR 19.7 million partly coincidental. It does, however, also in part conform in the receivables from construction contracts. The split to our strategy of including our suppliers more closely in of the BOT project into a separate line item reduced the providing the increased up-front financing needed in times receivables from construction contracts by EUR 19.7 mil- of crisis. By this practice we are able to make use of all lion. This was countered by a EUR 22.7 million rise attrib- discounting opportunities. utable mainly to SCHACHTBAU NORDHAUSEN GmbH (EUR 5.5 million), BAUER Vietnam Ltd. (EUR 6.3 million) • Other current liabilities decreased by EUR 11.1 million. and BAUER Resources Jordan Ltd. CO (Site Group). The purely balance sheet increase was EUR 3.0 million. • Effective income tax obligations increased by EUR 5.1 million. • Inventories increased by EUR 66.0 million compared to the previous year. The main factors in this were the up- The changes in 2010 as described had significant effects front financing of the deep drilling rigs and external inven- on the structure and on the individual line items of our bal- tory refinancing in an amount of EUR 52.3 million. ance sheet, particularly on the Assets side. The ratio of net assets to consolidated revenues rose to 106.7 percent. All • Trade payables increased by EUR 41.0 million. This was other balance sheet items changed immaterially, or solely in in line with our strategy of including our suppliers more line with the general development of business. With regard closely in providing the increased up-front financing to the balance sheet as a whole, it should be pointed out needed in times of crisis. that almost all line items were increased by the shift in ex- change rates. All in all, this resulted in an increase in net • Investing activities decreased substantially compared to assets of around EUR 40 million. previous years, leading to a EUR 46.6 million reduction in net cash committed. Net cash from operating activities shown in the cash flow statement decreased only to a minor extent from EUR 45.8 • The net cash committed for financing activities de- million to EUR 45.3 million. The following factors mainly creased by EUR 58.4 million relative to the previous year, contributed to this change: mainly due to a reduction in new indebtedness to banks down to EUR 32.3 million and due to an increase in loan • Other non-cash transactions rose by EUR 28.6 million. repayments totalling EUR 29.2 million. This resulted primarily from a sharp rise in impairment losses on trade receivables, as well as from shifts in exchange rates.

GROUP MANAGEMENT REPORT 47 Remuneration Report

VI. REMUNERATION REPORT

The Remuneration Report summarizes the principles ap- The variable remuneration paid to each member of the plied in determining the remuneration paid to the Manage- Management Board is limited by an individually defined ment Board of BAUER AG and explains the underlying maximum bonus level. This maximum is the upper limit of principles and amount with regard to the remuneration paid potential bonus payment in the normal course of busi- to the Supervisory Board. The Remuneration Report at the ness, and is paid in full if all set goals are attained. If busi- same time forms part of the 2010 Corporate Governance ness performance is exceptionally good, the said levels Report, which is published in this Annual Report. may be surpassed by up to 1.8 times.

• Remuneration of the Management Board The short-term criteria applied in setting the variable re- In the 2010 financial year up to October 25, the Manage- muneration elements are the performance of the respec- ment Board of BAUER AG comprised four members. By tive Management Board member in the past financial resolution of the Supervisory Board, with effect from that year and the economic position of the Group in respect date the number of members of the Management Board of attainment of budget targets in the financial year, was reduced to three and the service contract of Mr. Mark particularly the attainment of profit and revenue targets, Schenk was terminated with effect from the year-end. The taking into account general economic trends. Supervisory Board sets the overall levels of remuneration paid to the individual members of the Management Board The long-term criteria applied in setting the variable remu- based on proposals submitted by the Presidial and Person- neration elements are the success and future prospects nel Committee. The plenary Supervisory Board reviews and of the Group and the performance of the Management approves the remuneration system for the members of the Board in respect of these criteria. This assessment judges Management Board following prior consultations in the Pre- the decision-making of the Management Board in terms sidial and Personnel Committee. of sustainable business development over the past three financial years and the effects of this decision-making in The overall levels of remuneration paid to the individual achieving long-term stability for the business. Criteria members are set on the basis of a performance assess- applied here are long-term profit and revenue prospects, ment. This process assures that the overall remuneration is sustainable personnel development in accordance with appropriate to the duties and performance of the Manage- the future prospects of the Group, the development of the ment Board member concerned and to the situation of the corporate culture, the development of intra-Group collab- company. The remuneration paid to each Management oration, the safeguarding of corporate harmony, strategic Board member is composed of a fixed basic salary, paid in market and product development, long-term investment equal monthly instalments, and a variable annual bonus planning, risk and security management, long-term finan- which is determined according to both short-term and cial stability, and the quality of key financial indicators rela- long-term criteria at the discretion of the Supervisory tive to the prevailing economic conditions. Board. The short-term criteria applied in assessing levels of variable remuneration are weighted equally to the long- In assessing the appropriateness of the remuneration term criteria. paid to the Management Board, the variable remunera- tion is set and compared in proportion to the fixed basic The criteria for setting the fixed remuneration to members salary. Furthermore, the fixed and variable portions re- of the Management Board are the assignment of duties, spectively, and the overall remuneration paid, are com- the performance of the respective Management Board pared against the normal levels of remuneration received member, the economic position of the Group and its prof- by management board members of other stock market itability and ongoing future prospects. quoted companies, and other companies operating in

<<< Tunnelling on the Mittlerer Ring: Bauer will be working on the foundations for the road tunnel – which is almost three kilometres long and in places has two levels – in the south-west of Munich through to 2013. GROUP MANAGEMENT REPORT 48 Remuneration Report

the same sector, or companies similar in other ways, in all pension commitments to members of the Management Germany (horizontal comparison). A vertical comparison is Board at the year-end was EUR 2,520 thousand (previous carried out on two levels: firstly, the salaries of the Manage- year: EUR 2,314 thousand). The contracts of Management ment Board members are compared against those of the Board members include individual severance clauses regu- directors of the major BAUER Group subsidiaries; secondly, lating the specific terms of premature termination, with they are assessed relative to salary grade A VIII stipulated settlements oriented to the length of service of the Manage- in the collective pay agreement applicable within the Group ment Board member concerned and gauged so as not within the industry-wide framework of salary and training to exceed an amount of two years' remuneration for any remuneration to salaried staff and foremen in the construc- one Management Board member. No provisions for com- tion sector. pensation in the event of a takeover offer being made have been agreed with the members of the Management The remuneration is further set so as to remain competitive Board. with that generally paid to highly qualified management staff on the market as a whole. • Remuneration of the Supervisory Board Calculation of the remuneration paid to the members of the The Annual General Meeting held on April 28, 2006 resolved Supervisory Board is specified in detail in the Articles of As- that the BAUER AG financial statements and the Group sociation of BAUER AG. Each member of the Supervisory consolidated financial statements would contain no disclo- Board receives a basic annual fee of EUR 18 thousand, sures of the remuneration paid to individual Management payable in December of each financial year, plus reimburse- Board members, or of any payments to individual members ment of out-of-pocket expenses and any sales tax (VAT) lia- of the Management Board in the event of premature termi- bility incurred in performing the duties of a Supervisory nation of contract, for a period of five years, thereby apply- Board member. The Chairman of the Supervisory Board re- ing the legal authority assigned to it by Section 286, Sub- ceives twice that amount of remuneration, and the Deputy section 5 and Section 314, Subsection 2 HGB. Chairman 1.5 times the amount. The basic remuneration amounts are increased by 10 percent for each membership The total remuneration paid to members of the Manage- of a Supervisory Board committee, provided that the com- ment Board in the year under review, excluding allocations mittee in question was convened at least twice in the finan- to provisions for defined benefit plans, was EUR 1,665 cial year. Membership of the Mediation Committee is ex- thousand (previous year: EUR 1,824 thousand). Of that cluded from these remuneration provisions. Changes to the total, EUR 1,145 thousand (previous year: EUR 1,094 thou- Supervisory Board and/or its committees are taken into ac- sand) was not performance-related and EUR 520 thousand count in the remuneration proportionate to the respective (previous year: EUR 730 thousand) was performance-re- member's time in office, and rounded up or down to full lated. The total remuneration includes benefits in kind aris- months based on the standard commercial rule. The mem- ing from the private use of a company car and reimburse- bers of the Supervisory Board receive no performance- ment of travel expenses for each member of the Manage- related pay. ment Board, as well as pro rata group accident insurance premiums and employer's liability insurance association In the year under review, Dr. Karlheinz Bauer received contributions. from companies of the BAUER Group a monthly pension arising from a personal consultancy agreement and associ- The company pension scheme for Management Board ated defined benefits plan as well as an annual consultant's members incurred pension service costs totalling EUR 86 fee totalling EUR 109 thousand (previous year: EUR 114 thousand (previous year: EUR 83 thousand). The pay com- thousand). ponent entailing vested pension rights, which serves as the basis for calculating pension levels, is significantly lower The net remuneration paid to all the members of the than the basic salary in all contracts. Calculated in accor- Supervisory Board in the 2010 financial year totalled dance with IAS 19, the defined benefit obligation entailed by EUR 254 thousand (previous year: EUR 254 thousand). GROUP MANAGEMENT REPORT 49 Remuneration Report

The remuneration paid to the individual members of the Supervisory Board is listed in the following (excluding sales tax and expenses): in EUR '000 2009 2010

Chairman Dr. Klaus Reinhardt 38 38 Deputy Chairman Robert Feiger 27 27 Employer representatives Dr.-Ing. Dr.-Ing. E.h. Karlheinz Bauer 20 20 Dipl.-Ing. (FH) Rainer Schuster 18 18 Dipl.-Ing. (FH) Elisabeth Teschemacher 18 18 Gerardus N. G. Wirken 20 20 Prof. Dr. Manfred Nussbaumer 20 20 Employee representatives Norbert Ewald 20 20 Ronald Hühne 18 18 Gerhard Riedelsheimer 8 0 Dipl.-Ing. Gerold Schwab 19 20 Dipl.-Ing. (FH) Walter Sigl 18 18 Gerhard Piske 10 18 Total * 254 254

* Rounding to thousands of EUR resulted in a rounding difference of EUR 1 thousand in 2010

• Other No loans or advances were paid to members of executive The members of the Management Board are required to bodies of the company in the year under review, nor were limit the extent to which they take on Supervisory Board any liabilities entered into in their favour. As a matter of mandates and other administrative or voluntary functions principle, no securities-oriented incentive systems exist for outside of the company. The members of the Manage- members of the Management Board or Supervisory Board ment Board may not, without the consent of the Super- of BAUER AG, or for Group employees in Germany. visory Board, carry out any trade or business or conduct, BAUER AG provides D&O (Directors and Officers) group on their own or a third-party's account, any dealings in the insurance cover in respect of liability for economic loss to sector in which the company operates. Further, they may the members of executive bodies of BAUER AG and of all not, without the consent of the Supervisory Board, be- affiliates in Germany and internationally in which a majority come a management board member, director or person- share is held. The D&O policy includes an appropriate ex- ally liable shareholder of any other trading company. This cess for the insured parties. In respect of the Management ensures that no conflict arises with the assigned duties of Board members this was adjusted in the year under re- the Management Board member either in relation to time view, within the transitional period allowed by the German commitment or to remuneration received. No separate Act on the Appropriateness of Management Board Com- remuneration is paid for the assumption of executive or pensation (VorstAG), to the compulsory excess of at least supervisory mandates on the boards of Group companies. 10 percent of the loss up to at least an amount represent- ing one and a half times the fixed annual remuneration of the Management Board member concerned.

GROUP MANAGEMENT REPORT 51 Sustainability

VII. SUSTAINABILITY

SUSTAINABILITY WITHIN THE BAUER GROUP segments. At monthly meetings with the Group board, Corporate social responsibility starts at board level and matters relating to quality, health and safety and environ- extends to each individual in the organization. Sustainabil- mental protection are considered, binding targets are set, ity is a board-level issue in the BAUER Group. Reflecting and appropriate strategies are developed. The manage- the company's strong sense of corporate and individual ments of the individual Group companies then ultimately responsibility, it is not distributed as a portfolio across define specific and appropriate measures to attain the set central departments but, following the Group's structure, goals. A responsible manager is designated to oversee is implemented through the various company boards implementation of the measures. and divisional managers and applied by each person as appropriate. All managers are responsible for ensuring that quality, health and safety and environmental protection are opti- A special responsibility in this respect is incumbent upon mally yet cost-effectively safeguarded and continuously the management boards of the holding companies control- improved. The awareness of individual employees is stimu- ling the Group's Construction, Equipment and Resources lated and continually maintained by appropriate training and instruction.

VALUE ADDED 2010

in EUR million

Value added Other Depreciation and Cost of materials 377 expenses amortization 627 181 77

Minority Public interests purse 5 18

Profit Share- Interest Employees (in the holders * expenses 283 company) 10 36 25

* Proposed; subject to the consent of the Annual General Meeting to be held on June 30, 2011

<<< For a biogas plant in Uthleben, some 140 kilometres west of Leipzig, SCHACHTBAU NORDHAUSEN GmbH supplied all the technical systems, delivering a complete turnkey plant. GROUP MANAGEMENT REPORT 52 Sustainability

EMPLOYEES The number of employees was relatively constant in most The companies of the BAUER Group worldwide employed Group companies, although there were some more sub- 9,094 people (previous year: 8,872) on average over the stantial changes within some subsidiaries based on their year. The following table shows the distribution of the order situation. workforce across the major subsidiaries of BAUER AG • The biggest increases were recorded by BAUER EGYPT (BAG): BAUER Spezialtiefbau GmbH (BST), BAUER S.A.E. (140 employees) and BAUER Vietnam Ltd. Maschinen GmbH (BMA), BAUER Resources GmbH (196 employees). (BRE), SCHACHTBAU NORDHAUSEN GmbH (SBN) • The biggest decrease was at BAUER Malaysia SDN. BHD. and their affiliates, as well as SPESA Spezialbau und (72 employees). Sanierung GmbH (SPESA). The number of employees relative to revenues is currently EMPLOYEES OF THE BAUER GROUP still rather high overall, due to the crisis. However, this is true only of the Equipment segment. In the Construction 2009 2010 and Resources segments it has been, and is, relatively BST Group easy to adjust personnel capacities to suit market condi- Germany 718 692 tions. And this was in fact done, where appropriate, dur- (of which apprentices) (33) (30) ing the crisis. In some countries where markets collapsed International 3,654 3,861 altogether during the crisis, we maintained a reduced BMA Group presence merely sufficient to enable us to take opportu- Germany 1,621 1,615 nities as they arise in the event of a recovery. (of which apprentices) (98) (109) International 719 711 In the Equipment segment, we made use of all available BRE Group possibilities to adjust capacities at the production facilities Germany * 462 474 to the essential levels by reducing the use of temporary (of which apprentices) (13) (17) staff, cutting overtime and using up accrued holiday dur- International 393 442 ing the crisis. In addition, more work than usual was un- SBN Group dertaken in-house in order to utilize internal capacities. In Germany * 905 905 this way, we continued to find employment for our out- (of which apprentices) (73) (81) standingly skilled permanent workforce and maintained International 23 24 our ability to return to healthy growth again over the com- SPESA ing years. In the departments and business units of key Germany only 132 124 importance to our future – in sales and R&D – we deliber- BAUER AG ately avoided making cuts to personnel. We believed – Germany only 224 226 and continue to believe – that it makes strategic sense to (of which apprentices) (27) (27) prioritize working for the future of the business ahead of Other seeking short-term cost savings. Given the financial International only 21 20 strength of our businesses, this was the best approach in Group total 8,872 9,094 order to safeguard a steady rise in value. The growth Germany 3,818 3,772 planned for the coming years will prove this approach to (Germany, apprentices) (244) (264) have been correct, as it will become increasingly difficult International 4,810 5,058 to recruit good, loyal staff in Germany.

* The Mining division of SBN has been reassigned from the Construction segment to the Resources segment. The previous year figures have been As well as analyzing our workforce numbers, it is essential adjusted. to consider closely the business's key resource in a wide range of aspects. GROUP MANAGEMENT REPORT 53 Sustainability

PERSONNEL DEVELOPMENT IN THE GROUP Total 9,094

9,000 Apprentices 264

8,000

7,000 Industrial, incl. short- 6,000 term staff 5,722 5,000

4,000

3,000

2,000 Salaried staff 3,108 1,000

0 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Bauer maintains close contacts with universities and col- which newcomers get the chance to meet the Manage- leges, as part of its strong commitment to promoting ment Board and other senior managers, gain an insight into education and training of young people and encouraging the various areas of the company and experience our cor- knowledge transfer. We have established 45 cooperation porate culture. For staff coming to Schrobenhausen from agreements all across Germany, coordinated by 28 com- abroad we provide a multilingual orientation guide to help pany staff. In order to profile Bauer as an employer, we reg- them get used to their new working and living environment. ularly show at recruitment fairs. We also support interested and committed students during their studies: as interns BAUER Training Center GmbH has devised an extensive they have the opportunity to get to know us as a company training programme to ensure that our employees are well and to get a feel for working life and gather their first career prepared for the tasks allotted to them and are able to experience prior to graduating. We supervise a large num- keep pace with changing requirements. Training available ber of diploma dissertation projects every year. This is not covers specialist technical disciplines as well as tuition in only a form of knowledge transfer, but frequently also lays methodology, leadership and social skills, and language the foundations for a long-lasting partnership. courses. With a budget of around EUR 1.5 million, we organized a total of 389 events. Bauer has always been committed to investing in the training of its own staff. In the year under review we spent In December 2010, BAUER Training Center GmbH became EUR 850,000 on turning the former anchor fabrication the first accredited test centre for operators of rotary drilling building in Schrobenhausen into an extensive training rigs and pile-drivers – the only one of its kind in the world workshop facility which we moved into in October 2010. to date. The test for acquisition of an operator's permit It provides office and communal break facilities in addition devised by Bauer in conjunction with German construction to machinery and workstations on which apprentices can industry bodies sets a standard which is also recognized learn trades such as welding and CNC lathing in accor- internationally. In preparation for the test, BAUER Training dance with the latest safety standards. Center GmbH offers a two-week course covering safety topics in addition to teaching participants about how the To ensure that new staff are rapidly integrated, we host equipment works and how to carry out a range of different intensive introductory seminars in Schrobenhausen at drilling techniques. The course also teaches practical GROUP MANAGEMENT REPORT 54 Sustainability

machine operation, including handling in difficult situations, Schrobenhausen, a new training facility was installed in an such as in the tilt test on our new training grounds in Aresing. existing building, complete with a new service annex. In the USA, the plant at Conroe near Houston was completed. We encourage our employees to identify with and help This involved construction of the paintshop unit, which develop the company, incorporating their ideas and sug- was postponed from last year due to delays in obtaining gestions into working practices in order to enhance our planning approval. competitiveness and make working for Bauer even more attractive. In the year under review a total of 632 sug- Internationally, we continued our long-term concept of es- gested improvements were submitted to the company tablishing dedicated service centres, with small-scale pro- suggestion scheme – an average of three per working day, duction workshops, in the key markets for our machinery and well up on the figure in the previous two years. We sales. In the year under review we converted an existing deploy an electronic workflow system to log, appraise and old building near Moscow into a workshop, while in Great evaluate suggestions quickly and efficiently. Britain a completely new facility was built. In the Resources segment, too, minor construction projects were undertaken Satisfaction, mutual trust, confidence and loyalty are some in order to boost our production capacities in Nordhausen of the aims which we at Bauer pursue. That is also true – and in Poland. indeed, even more so – when times are difficult and rela- tions may otherwise be strained. During the economic Further intensive investments were made in equipment, crisis, for example, we deployed short-time working specifically in the Construction segment, in order to meet selectively as a means of retaining our core workforce. the market demand for ever more powerful machinery to Employee loyalty and satisfaction is reflected in a very low handle specialist projects. The Resources segment pro- fluctuation rate and a long average period of service: Over cured numerous drilling rigs to sink deep wells, especially 40 % of our employees have been with us for more than for the market in Jordan. 10 years, and more than one in five have worked for Bauer for over 20 years. We routinely have the opportunity to Additions to the tangible assets of BAUER Aktiengesellschaft celebrate individual employees' 40 and sometimes even in the 2010 financial year totalled EUR 1.6 million, against 50 years of service. There are also numerous instances depreciation totalling EUR 1.3 million. of several generations of a single family choosing to work for Bauer – a rewarding affirmation of our character as a The BAUER Group invested EUR 90.7 million (previous genuine family business. year: EUR 136.8 million) in property, plant and equipment in financial 2010. Depreciation of fixed assets across the CAPITAL INVESTMENTS Group totalled EUR 64.9 million (previous year: EUR 58.6 Having concluded the largest capital investment pro- million). Write-downs of inventories due to use Group-wide gramme in the company's history in the preceding years, totalled EUR 12.2 million (previous year: EUR 14.4 million). with the construction of new facilities in Germany and the USA we returned investment levels to their normal long- Ongoing capital investments were funded primarily by cash term levels in the year under review. A number of building flows from operating activities, as well as from cash flows projects were nevertheless undertaken in 2010. In from borrowing. GROUP MANAGEMENT REPORT 55 Sustainability

RESEARCH AND DEVELOPMENT The increasingly intensive development of the coastal regions, All the companies of the BAUER Group invested substan- with wind turbines and tidal power stations, in ever increas- tial sums in developing new construction methods and ing sizes, demands ever more complicated foundations at equipment. Key areas of focus were large-scale rotary difficult depths and in heavy currents. We are confronting drilling rigs, drilling tool technology, small boring equi- these challenges by running basic test systems in northern pment in the field of anchoring and high-pressure injection, Scotland and by constructing an entirely new drilling rig diaphragm wall technology and measuring technology for which can be used to sink bores with no firm attachment to purposes of quality control. The range of standard equip- the rig ship. ment was expanded with the BG 50, a very large pile-driver variant which has already been successfully deployed in the We are also devoting major efforts to the development of USA. A complete range of cranes was launched to handle state-of-the-art materials for on-site applications. various specialist foundation engineering applications, though specifically as base carriers for our trench cutters. In the Equipment segment we invest over 4.3 percent (in- The largest of these cranes is able to carry cutters with cluding internal expenditure) of the corresponding portion of excavation depths down to well below 150 metres. total Group revenues in research and development. A staff of some 184 people are involved in this field, as well as out- At the Bauma construction machinery trade fair in Munich side consulting engineers and interns. We have decided not in spring 2010 we presented new developments in virtually to cut staff numbers and research and development expen- all segments of our product range. Industry visitors were diture even in the face of the crisis, so as not to put at risk once again highly impressed by the innovative strength of our chances of taking new opportunities as they arise in fu- our various Group companies. At Bauma China in the au- ture. We are also building up development capacities at our tumn we showed our expanded Chinese-made equipment international locations, particularly in India and China. This range. The machines – now also covering the 30 metre- will enable us to benefit from the large numbers of highly tonne range – sold well. trained engineers available on local labour markets.

Two newly developed drilling rig models with load-carrying Research and development expenditure in the Construction capacities up to 300 tonnes underwent extensive testing segment is 0.5 percent of total Group revenues, and in the for geothermal exploration down to depths of several thou- Resources segment 1.1 percent. Further significant re- sand metres and for oil and gas exploration. Further vari- sources are being invested in the preparation and design of ants with capacities up to and beyond 400 tonnes were construction sites. Profitable construction contracts are very built. As part of our active marketing campaign we pre- often obtained on the basis of special proposals on the mar- sented the machines to interested industry specialists at ket. Drawing up such special proposals is development customer events. We also added to our product range with work, and also provides a competitive edge for future proj- new machinery positioned between the traditional well ects on which the costs cannot be recorded separately from drilling rigs (down to around 1,000 metre depths) and the the general construction works. very large rigs. In order to develop such machinery we have also entered into a joint venture with a very experienced Our expenditure on research and development is reflected drilling operator in Botswana, with whom we will be serving in around 260 current patent series, including almost 1,080 the markets in southern Africa. patent applications, registered patents and utility models worldwide. GROUP MANAGEMENT REPORT 56 Sustainability

ENVIRONMENT When establishing new production and office facilities, or The activities of BAUER Group companies inevitably impact when extending existing facilities, we thoroughly investi- on the environment, including the air, soil and water. We gate all possibilities for using renewable energy and saving also exert an effect on the world around us in terms of the energy. In 2009 we completed the biggest programme of noise and vibration we generate, and in the consumption of capital investment in the company's history. This entailed raw materials and primary energy. We make all efforts to im- the implementation of numerous energy-saving measures. pact as little as possible on the community at large, and we employ the latest state-of-the-art methods in these efforts. The global community is faced by major challenges brought about by population growth, rising consumption In all the work we do, we regard compliance with environ- of natural resources and the associated environmental pol- mental laws and regulations as a minimum standard. How- lution. Key among these challenges are providing people ever, we also seek by means of additional measures to with access to clean drinking water, supplying industry continuously improve our environmental protection beyond with the energy and valuable mineral resources it needs, this minimum level. and preserving and restoring a clean environment. The BAUER Group is applying its expertise in specialist foun- The awareness of employees with regard to environmental dation engineering and machinery manufacture to help and climate protection issues is promoted by means of on- resolve these pressing challenges of the future. Its Re- going education and training as well as by internal commu- sources segment operates in fields relating to water, the nications. environment, energy and mineral resources. By actively engaging in such fields of business, the BAUER Group is The Group-wide management system implemented by the making a concerted contribution in terms of its responsibil- BAUER Group safeguards comprehensive environmental ity to humanity and to the planet. protection in all phases of production and in all the com- pany's business processes. Environmental protection is In the Sultanate of Oman, local subsidiary BAUER Nimr incorporated, alongside health and safety, as an integral LLC has completed the largest commercial reed-bed element of all business processes. This ensures that all rel- treatment plant in the world and has engaged upon a evant activities and procedures are integrated in an efficient 20-year operating contract. The plant covers an area of manner, also in terms of their cost-effectiveness. 235 hectares – roughly 450 football pitches. It treats oil- contaminated process waste water based on a purely bi- The BAUER Group participates in numerous environmental ological method following a physical pre-treatment stage programmes. The general management systems of the by means of centrifuges. The project represents a ground- BAUER Group – and thus its in-house business processes breaking development in terms of process water manage- – were adapted to the environmental management system ment in the oil industry, which operates primarily in desert EMAS and successfully certified for the major companies in terrain. Schrobenhausen as far back as 1996. A number of the Group's subsidiary companies are today also certified to More information and data can be found in the company's the EMAS standard. simplified Eco Statement for 2010 and in our annual Sus- tainability Report. GROUP MANAGEMENT REPORT 57 Follow-up Report

QUALITY struction work starts, and accompanies the project all the As one of the leading contractors and machinery manufac- way through to completion. The various processes applied turers in the specialist foundation engineering field, the are subject to a range of rules, specifications and stan- BAUER Group has an obligation to maintain top quality. dards (such as quality plans) which are monitored by Alongside great innovative strength, our high quality stan- means of defined procedures, with the results of all checks dards are a foundation stone of our success. This is how being documented in production logs. In addition to the Bauer has been able to develop over time from a local continuous inspection, testing and coordination imple- well-sinking company into an international construction mented during the construction process, our Quality Man- and machinery manufacturing concern. agement department conducts on-site checks. This neutral department, whose existence and work is not tied to cost The execution of specialist foundation engineering works, and sales revenue trends, carries out system, process, and the manufacture of the necessary related equipment, product and project audits. demands high levels of trust on the part of the customer. This can only be achieved and lastingly sustained on the On completion of the work, customer satisfaction surveys basis of consistently high quality levels. With the establish- based on questionnaires or personal interviews ensure ment of its Resources segment, the BAUER Group has continuous improvement of our systems, processes and also started to implement its quality philosophy in a new products. field of business. The quality management system operated at Group head- The Group-wide quality management system is coordi- quarters in Schrobenhausen was once again successfully nated by the holding company board with the directors of recertified to ISO 9001 in 2010. the individual companies. Each company nominates its own personnel to implement and be responsible for quality management, in the role of a Quality Representative (QR) and as supporting Quality Managers (QM). The responsible staff work to attain quality certification in accordance with DIN EN ISO 9001. Other applicable certification may be VIII. FOLLOW-UP REPORT sought and obtained depending on the specific field of business. No matters of special note occurred after the end of the financial year. Internal audits are also conducted by QRs or QMs from other Group companies in consultation with the respective directors. This supports and enhances Group-wide processes such as in relation to human resources, IT, purchasing and risk management.

The process of safeguarding the quality of our construction engineering services begins well before the actual con-

GROUP MANAGEMENT REPORT 59 Opportunity and Risk Report

IX. OPPORTUNITY AND RISK REPORT

RISK REPORT

RISK MANAGEMENT SYSTEM processes. Audits routinely verify the implementation of In our business operations we are exposed to risks inextri- work instructions and management reviews continuously cably linked to our commercial activities. All commercial improve their efficacy. business activities entail a degree of risk. Handling of project risks Goals Project risks are an integral element in the work of the Con- The primary goal of our risk management system is to pro- struction and Resources segments, wherever construction mote and support our business activities in a systematic work or plant assembly is carried out on the customer's manner, based on comprehensive risk awareness. For this premises. Associated risks, such as in relation to the purpose, we provide our decision-makers at all levels with ground and resulting from the individual character of each unified methods in order to obtain transparency as to the individual project – including contract, timetable and dam- risk situation faced by our businesses. This enables us to age risks – can thus accumulate detrimentally in specific optimize the risk-to-revenue ratio and so also enhance the cases in such a way that they may threaten the existence, if value of the business. not of the Group as a whole, at least potentially of smaller subsidiary companies. Projects above a low threshold It is the function of risk management to identify, analyze value are therefore systematically analyzed prior to submit- and evaluate existing and expected risk all along the value ting quotations in terms of their risks, evaluated and finally creation chain, to counter any such risk by means aimed at assigned to a risk class. They are then allocated cost sur- optimizing returns, and continuously to monitor it. charges according to their risk class and additionally sub- jected to a strict approval procedure. Since the operations of our Construction, Equipment and Resources segments are of differing nature, our risk man- The risk classes are assigned on the basis of the potential agement system also applies different elements and ana- level of damage which may be suffered and additionally on lyzes different points in the individual processes of the the basis of tried and tested checklists according to a KO operations concerned. system in order to prevent misclassification to a risk class that is too low. The system has been developed over a Risk culture number of years across the corporate units faced by the Based on intensive communications relating to risk in all relevant project risks and expanded to apply to the relevant corporate departments and units, such as at conferences operations. and on training courses, as well as forming an integral part of practically all management meetings, we are working to Risk aggregation continuously improve risk awareness and thus to create a In a preliminary assessment, the relevant areas of risk are highly developed risk culture. identified, structured in line with corporate processes and merged into a general risk inventory taking into account the Work instructions principles of cause and effect. In a second stage, the risk Our risk management system is closely linked to our quality areas are then subjected to a detailed analysis and evalu- management system. Risk management is directly incorpo- ated and prioritized according to a pre-defined reference rated into relevant work instructions at many points in the scale. order processing procedures of the individual operations. Specific single risks, such as in relation to bad debt, health Relevant risks above a certain threshold value are quantified and safety or compliance, can thus be reliably controlled based on scenarios. Planning risks are estimated using with no significant impairment of the efficiency of bandwidths.

<<< Know-how in bridge-building: For the Rathenow bypass SCHACHTBAU NORDHAUSEN GmbH constructed a bridge over the Havel river – a combination of a box girder and arch design. GROUP MANAGEMENT REPORT 60 Opportunity and Risk Report

RISK CONSOLIDATION IN THE GROUP which are subject to legal requirements, stipulated centrally by the Management Board or senior management of our Group

Construction Equipment companies, or designated as requiring mandatory approval, Group are bindingly documented in our Corporate Management Resources Manual and are available to our employees in regularly up- dated form on the Intranet.

Strategic risks We have designated risk managers whose role it is to Risk monitoring Risk handling expand the substantive content of our risk management Market risks system and, in conjunction with the management of the indi- vidual Group companies, to make it accessible to everyone Financial market risks within the organization as part of our risk culture. This moni- toring approach means they also help to ensure the confor-

Risk analysis & aggregation Political, legal

Risk identification & evaluation mance of processes and the functionality of the internal and social risks control system. Our risk early-warning system is also sub- jected to routine review by our auditors, with regard to the Performance risks measures to be taken by the Management Board pursuant to Section 91, Subsection 2 AktG. Their suggestions are Risk Compass incorporated in order to improve the system.

To estimate equity, liquidity and insurance requirements, the STRATEGIC RISKS risks are finally aggregated both for the single companies Strategy development and implementation and for the Group as a whole using a specialist software Corporate strategies have been defined and implemented for program according to the Monte Carlo method. the Group and for its operating subgroups in the course of extensive strategy development processes and with the inten- Risk management procedures are stipulated in respect of sive involvement of the management. The goals for the vari- the individual risks. The process description covers the risk ous strategy areas and the implementation of the resultant policy, the organizational structure and procedures, and the measures are reviewed at regular intervals, the results are system of periodic reporting. The risk process is also inte- communicated accordingly and the measures adjusted grated into the planning process. where appropriate.

At the end of each financial year reports are submitted to Based on the thorough process of strategy development, the Management Board and Supervisory Board. Risk valida- the intensive involvement of the management and the regu- tion is carried out at least once a year following individual lar system of review – not least also with regard to potential consultation. The system is continually being updated and short-term changes in the operating environment – we re- continuously improved both qualitatively and structurally in gard the risks in this area as being low. terms of the integration of more Group companies. Segmental structure Monitoring We counter the strategic risks arising from the segmental The individual elements of our risk management system are structure of the business by dividing it into separate Con- documented and monitored through our Controlling depart- struction, Equipment and Resources segments. The busi- ments. All integral elements of our business processes and ness cycle of the Resources segment, in particular, is entirely corporate decision-making are embedded in our Group-wide independent of the Construction and Equipment segments. planning and controlling processes. Moreover, Group-wide Moreover, the Equipment segment's move into deep drilling planning, control and reporting processes are subject to con- and the manufacture of machinery for mining applications tinual review in terms of their efficacy and efficiency. Processes will also further reduce its dependence on the construction GROUP MANAGEMENT REPORT 61 Opportunity and Risk Report

sector. In these times of global economic crisis, when market economic trends in the construction sector, the launch of risk in relation to our machinery manufacturing operations the Resources segment has enabled us to isolate part of our very rapidly and significantly became reality, our Construction business from the effects of construction cycles once and and Resources segments have provided the Group as a for all. Our strategy of spreading business in each segment whole with stability. Thanks to the international organization across a large number of markets worldwide further reduces of the Group, currently operating more than 110 individual the overall risk, so that no serious risk is posed to the Group companies in some 70 countries around the world, our as a whole in the event of a weakening or collapse of any segmental structure places us in a sound position. regional markets. Moreover, in the event of a regional market downturn our network strategy in the Construction segment MARKET-RELATED RISKS enables us to relocate our capacities rapidly to another Macro-economic risks country and continue operations at the new location. Our The key risks to which the global economy, and also the recently established Resources segment has also already BAUER Group, are currently exposed can be seen as expanded on a broad international scale. specifically stemming from the financial market crisis. The level of sovereign debt of the USA and of some countries Procurement risks in the EU has reached a dramatic level. This entails both ex- Even if the consequences of the economic crisis have not change rate risks and demand-related risks in the markets yet been overcome on the markets of Europe and the USA, concerned. the procurement situation in some specific segments of the machinery manufacturing market has been somewhat By contrast, the rapid economic recovery in the Far East – heightened once again due to massive demand from the Far and most especially in China – is making the German econ- East, and particularly from China. Thanks to our long-stand- omy, including the BAUER Group, structurally dependent on ing and successful policy in our machinery manufacturing that region. operations of planning well ahead to safeguard supplies of components which may be subject to bottlenecks, and However, based on its international organization and its based on additional measures we have taken and on our chosen segmental structure – expanded since 2007 by the ability to have time-critical components made within the addition of the Resources segment – and thanks to its out- Group in the event of a bottleneck, the risks in terms of standing equity ratio, the Group is well equipped to handle procurement currently remain classed as low. any additional impact of the crisis as it tails off. Political risks The Group Management Board and the directors of the three In early 2011, beginning in Tunisia, there have been signs operating segments routinely consider extrapolations based that the young and better educated classes in a number of on specific scenarios of the impact of any given risks on the Arab countries – including Egypt and Yemen for example – company in question and on the Group as a whole. Any nec- are no longer willing to tolerate the undemocratic and more essary and relevant countermeasures are derived from these or less totalitarian regimes ruling their respective nations. analyses and implemented in full. Even at the height of the It is at present difficult to predict how far these democracy economic crisis during 2009 and early 2010, our flexibility movements will advance, and how long it will take for stabil- enabled us to make essential capacity adjustments effec- ity to return to the countries in question and for investor con- tively – including to our manufacturing depth – without hav- fidence to be restored. ing to cut back the company's core permanent staff. The international nature of the BAUER Group's operations Selling market risks increases the likelihood that political change in specific It has always been one of our key strategic principles to countries may have a substantial impact on the economic counter risks on our selling markets by means of a multi- development of the local subsidiaries in these countries. In segment organization. Whereas our machinery manufactur- extreme cases, this may even threaten the existence of the ing business is still heavily influenced – if at a delay – by subsidiaries concerned. Owing to the broad spread of the GROUP MANAGEMENT REPORT 62 Opportunity and Risk Report

Group's operations, and its restraint in investing in poten- outside of Germany are selected according to stringent tially unstable countries, the political risks in individual coun- creditworthiness criteria and the shortest possible payment tries pose little risk to the Group as a whole. deadlines are agreed. In the Equipment segment, our con- tracts stipulate retention of title and provision of letters of cre- FINANCIAL RISKS dit which safeguard payment on delivery of the equipment. Liquidity risks The Group's liquidity is safeguarded based on available By these measures we are able to keep unavoidable pay- cash in hand and bank credit balances, and above all by ment defaults at a stable low level. The risks arising from adequate and long-term lines of credit. The finance base price changes and payment default, liquidity risks and risks created has provided the Group's current business and its arising from cash flow fluctuations to which our business is medium-term growth with the necessary long-term security. exposed are set forth in our reporting. Liquidity is monitored and managed centrally within the Group by means of an intensive controlling system. As a re- Covenant risks sult, any liquidity risks are detected at an early stage, en- Our promissory notes are covered by covenants linked to abling them to be countered by suitable measures. pre-determined financial variables. These are primarily the ratio of net debt to EBITDA, the ratio of EBITDA to net in- Interest rate risks terest coverage, and the equity ratio. Exceeding the agreed We reduce risks arising from interest rate fluctuations by limit values would result in an increase in interest rate. We entering into transactions with long interest rate fixes wher- regard compliance with the agreed limits as not being at ever possible. In order to minimize interest rate fluctuations risk, however, so that no financial risks for the BAUER and to utilize periods of low interest rates for as long as Group arise from them at present. possible, the credit lines have been converted to a propor- tionately high degree into long-term financing instruments. RISKS RELATING TO OUR BUSINESS OPERATIONS Interest rate derivatives are also deployed. Contract risks Our Construction and Resources segments primarily pro- Foreign exchange risks vide construction, drilling and environmental services. The Where possible and available, we counter foreign exchange underlying projects are practically always prototypes exe- risks by financing our international holdings in their respec- cuted in each case on the basis of customized contracts. tive local currency. If this is not possible, we enter into for- The resultant risks are subject to stringent management eign exchange forward contracts and options at parent routines. company level. For example, in relation to practically all projects above a Risks of payment default very low threshold value the risks are systematically ana- To limit our exposure to risk of payment default, in Germany lyzed prior to signing of contracts, documented and classi- we have at our disposal a tried and tested system compris- fied according to their potential for damage. The individual ing credit insurance, payment default guarantees, advance risk classes in turn form the basis for cost surcharges and payments and – in special cases – also guarantees as the further approval procedures. security in respect of contracted works. The relevant risks are identified for each project, the applicable security instru- We have long-standing relationships with law firms in Ger- ments are stipulated, and their implementation is monitored many and internationally who assist in providing advice and based on the two-person rule involving representatives of training for our staff engaged in framing contracts as well as both technical and commercial staff. supporting and advising us in contract negotiations relating to major projects. In the Equipment segment, contract risks can As the security instruments applicable to Germany are not be minimized by means of standardized contracts and by always available in other countries, our potential customers stipulating retention of title. GROUP MANAGEMENT REPORT 63 Opportunity and Risk Report

Quality risks IT risks Great attention is paid to the quality of work done in all The Group's operational and strategic management is areas of the business. This is safeguarded by employing largely dependent on functional IT systems. Security to well trained staff and by means of a long-established quality prevent data loss or unauthorized access, as well as to management system which has been in place for many safeguard system and data availability, is ensured by years. All the major companies of the BAUER Group are means of state-of-the-art hardware and software and certified, and are audited on a regular basis. building services technology.

A highly developed quality awareness, backed by long tried A consistently applied emergency plan counters the risk of and tested quality assurance procedures, enables us to failure due to mechanical effects. The vulnerability of our learn systematically from any quality non-conformance in systems was assessed in the reporting period by a large- our various business units, thereby implementing a process scale penetration test. The results were overwhelmingly of continuous improvement. positive. No significant IT risks are discernible as a result.

Insurance loss risks Research and development risks Insurable risks, including third-party liability, fire or machin- As a technology leader, particularly in our Equipment seg- ery breakdown, are covered by means of appropriate insur- ment, we counter any possible weakening of our market ance policies. Furthermore, suitable precautions and organi- position by means of continuous research and develop- zational measures have been implemented to deal with all ment. Although the booming markets in the Far East and conceivable eventualities, so as to avoid or at least mini- the resultant new competitors are sharpening the innova- mize the numbers of such loss events. Any loss which is in- tive pressures, we have to date succeeded in maintaining curred is systematically analyzed as part of the quality man- the necessary edge as a technology leader. agement system and utilized to further optimize systems. Nevertheless, we are well aware that these pressures will Personnel risks continue to grow. That is one reason why we are also in- We monitor personnel risks very attentively. These monitoring creasingly utilizing low-cost local development resources in activities focus in particular on the qualification levels of per- India and China to provide a rapid, cost-effective boost to sonnel, their age structures and motivation. Our procedures our rate of innovation. Thanks to our great innovative for providing assistance and support to our employees, from strength, we regard the risks in relation to research and devel- the selection and recruitment stage, through induction, quali- opment as being not inconsiderable but still manageable. fication and training, and incorporating ongoing support in personal development, have been continuously improved. Compliance risks Fluctuation rates have been very low for many years, and For political reasons or as part of the War on Terror, a num- represent an affirmation of our personnel policy. ber of countries in Europe and the USA have imposed em- bargoes prohibiting trading with specific companies or per- Moreover, our stock market listing, size and reputation on sons in certain countries. Computer-aided procedures have the market also make us externally well respected as an been introduced to assist the various departments and attractive employer on a national and international scale. subsidiary companies within the BAUER Group to imple- Job rotation within the Group ensures an intensive system ment compliance rules effectively. This has meant, among of networking among our staff, so that bottlenecks and other consequences, that our activities in some critical delays can be smoothed out across borders and between countries have been severely curtailed, or operations have individual Group companies. Consequently, we judge the not been started in the first place, in order to be sure of risks to which we are exposed in the personnel sector to avoiding compliance conflicts. be relatively low. GROUP MANAGEMENT REPORT 64 Opportunity and Risk Report

Internal control and risk management system in The individual Group companies and departments are moni- relation to the financial reporting process tored on a monthly basis by the central commercial depart- Consolidated accounting risks comprise risks in respect ments in the respective segments, where reports are consol- of accounting, valuation and recognition. To counter idated and analyzed, thereby further reducing the accounting, them, elements of the risk management system have valuation and reporting risks. These procedures routinely re- been integrated into the consolidated financial reporting view accounting processes and optimize them as required. process. At Group level, the figures from the consolidated companies The accounting functions for the major subsidiaries in Ger- are initially checked by the investment controllers and are many are mainly managed centrally at Group headquar- then reviewed by Group Accounting according to the two- ters in Schrobenhausen. This also permits specialization in person rule and corrected as necessary in consultation with certain kinds of business operations, such as consortia, the subsidiaries. and means that transactions are all treated equally. The consolidated figures are in turn checked on a monthly The accounting functions for the other subsidiaries – basis against the figures from the annual Group-wide plan- practically all international subsidiary companies outside ning process and analyzed on the basis of Group key per- of Germany – are usually managed by decentralized in- formance indicators (KPIs). Any necessary correction of house commercial departments. In this, our international non-conformance is implemented promptly by the managers subsidiaries are assisted by external accountants and of the units concerned. auditors as well as by our investment controllers, so as to ensure properly qualified financial reporting in accordance The major Group company annual financial statements and with local laws or conforming to International Financial the year-end consolidated financial statements are audited Reporting Standards (IFRS). The financial statements of by auditors in accordance with the applicable legal require- the major Group companies are additionally audited in ac- ments and standards, and are reviewed by the Supervisory cordance with IFRS. Audits are conducted in accordance Boards established in the various business units as part of with the International Standards on Auditing (ISA). their duty of supervision. The key figures and related infor- mation reports are submitted to the Management Board The procedures for monthly Group reporting, preparation and the Supervisory Board of BAUER AG from the central of quarterly and annual financial statements and consoli- accounting function on a monthly basis. dation of the individual financial statements in accordance with IFRS are implemented with the aid of Group-wide The IT systems employed in these procedures are protected reporting packages on the basis of a unified schedule of by appropriate security systems against unauthorized ac- accounts by the Group Accounting function. Appropriate cess and data loss. Based on the systematic multi-segment adjustments are made to adapt local accounts to IFRS. structuring of the Group's accounting process, with its redundant control instances, we are able to classify the At the major Group companies the success of each indi- resultant risks as low. vidual department is mapped as a central management instrument by means of an expense distribution sheet. OVERALL RISK This reveals any non-conformance to annual budgets. Despite the still marked effects of the financial market crisis, At project level, a monthly reconciliation is carried out to particularly on our Equipment segment, no single or aggre- cross-check the actual figures against the cost account- gated risks were discernible in the reporting period which ing and site management budgets. Our judgement and might cause lasting damage to the BAUER Group. The experience tells us that self-monitoring allied to mutual management sees no change in the overall risk situation, monitoring are the effective elements of our system of among other factors also in view of the business prospects internal controls. for the current financial year. GROUP MANAGEMENT REPORT 65 Opportunity and Risk Report

OPPORTUNITY REPORT

OPPORTUNITY MANAGEMENT Suggestion scheme We regard opportunity management, firstly, as part of our Innovation is possible at practically every point within our system of risk management. That is to say, opportunities business processes, and our employees are best posi- are identified and managed at the same time as risks in tioned to know where improvements can be achieved in the course of the risk management procedure, with the their particular sphere of work. In order to collate and make aim of promoting shifts to the positive. However, we also use of the suggestions which our employees submit, we regard opportunity management as the promotion of a have devised a system for the unbureaucratic recording, continuous and, where appropriate, systematic search for evaluation, implementation and rewarding of suggested new opportunities, changes or trends in our operating improvements, which has been in turn rewarded by an environment as they arise. increasing number of good ideas.

Goals STRATEGIC OPPORTUNITIES The primary aim of our opportunity management system Over the years, our Group has repeatedly worked on single is to promote and support our business activities in a sys- projects in marginal markets. This has led to the establish- tematic manner, based on comprehensive awareness of ment of independently operating business units. One ex- opportunities arising. We motivate our decision-makers to ample of this is in our activities relating to environmental do just that, providing them as far as possible with the technology which, having begun some 20 years ago, have methods necessary to be able to identify and evaluate grown to become an international business unit forming opportunities in their respective market or working environ- part of our Resources segment. ments at the earliest possible stage. This in turn enables us to optimize the opportunity-cost ratio and so enhance A similar development grew out of the first deployment of the value of the business. specialist foundation engineering equipment for diamond exploration, which has since become the Exploration and Opportunity culture Mining Services division within the Resources segment. At all levels of communication relating to risk, such as at conferences and on training courses, as well as in man- Together with the 2007 acquisition of the GWE Group, agement meetings, we stress the link between opportunity specializing in the development, manufacture and sale of and risk and seek to convey the search for opportunities high-grade well engineering products and in close-to-the- as being worthwhile. We also seek to establish and main- surface geothermal energy extraction, we were able to tain within the Group a culture of independent responsibil- merge the three businesses to create the new Resources ity and orientation to goals, linked to the principles of self- segment. This core business unit, established in 2007, managed organization, as a key prerequisite for a highly is focused on areas relating to water, energy, mineral re- developed opportunity culture. sources and the environment – some of the major issues facing humanity in the 21st century. Development and innovation Development and innovation are systematically integrated Rapid population growth, surging demand for energy and min- into many standard processes within the Group. Their effi- eral resources and strong economic growth in the so-called ciency is monitored as part of the quality management sys- BRIC countries are factors delivering further increasing growth tem and by way of the corporate controlling function. It is potential for this segment. Moreover, the Resources segment also ensured that customers' wishes are understood as is much less dependent on the economic cycles of our tradi- being opportunities, and are translated into innovations for tional construction and machinery manufacturing markets. our products and services in a timely manner. The capacities of our engineering offices are systematically being strength- Further strategic opportunities are also arising in the devel- ened by resources from countries with high levels of educa- opment and manufacture of deep drilling rigs. This is an tion allied to low labour costs, such as India or China. area in which we have been operating for some time, and GROUP MANAGEMENT REPORT 66 Opportunity and Risk Report

in which we have been able to build up considerable know- The recovery in demand for construction services now how. The first rig model of this kind has successfully com- also being seen in the USA and Europe will deliver positive pleted trials on a test bore at our own facility, and is now impetus both to our specialist foundation engineering being put up on the market. We have already made major operations and our machinery manufacturing business, progress in developing and building further deep drilling rig which is currently profiting mainly from healthy demand in models, enabling us to present a complete range in the the Far East. Even if the effects of the financial market cri- current financial year. sis have not yet been fully overcome, the upward trend in the worst-hit markets is unmistakable. This not only offers additional strategic opportunities for the Group as a whole, but also represents a major step forward PROJECT OPPORTUNITIES in terms of balancing out risk. In order to bring about a Regardless of national and global market cycles, projects rapid internationalization of the new Resources segment, often arise in otherwise weak markets which we as a we are utilizing the experience of our long-standing organi- Group are extremely well equipped to handle thanks to zational units in the other two segments. the mix of our products and services portfolio. Examples of this are processes for retrofitting of core seals in earth- MARKET OPPORTUNITIES work dams, or for the long-term, environmentally friendly Thanks to the rapid growth being seen in the BRIC states treatment and disposal of industrial process water from and the resultant steady rise in energy prices, it is becom- the oil industry. ing increasingly more worthwhile to explore even difficult- to-access oil and gas sources which demand intensive The resultant projects in some cases entail very large lot drilling operations. Demand for deep drilling and for deep units. When contracted, we are able to manage them suc- drilling rigs will thus continue to rise. cessfully by converging our global resources and based on our many years of experience in handling large-scale In addition, huge areas across Australia, Africa and Indone- projects. sia are currently being staked out as claims for the extrac- tion of coal-gas. Their seriousness in terms of mass extrac- IT OPPORTUNITIES tion is being impressively underscored by the planning and Although information technology has today become an in- construction of enormous gas liquefaction plants. tegral part of our business processes, its possibilities have not yet been fully exhausted. Improvements in hardware Further market opportunities are also arising in deep drilling and software, as well as connectivity among all our sub- services. Based on our acquisition of majority shareholdings sidiaries via the Internet, offer further good potential for in FORALITH Holding AG in Switzerland and Site Group for optimization. Services and Well Drilling Ltd. Co. in Jordan, and thanks to our in-house drilling rig production, we are capable of carry- The increasing standardization and interlinking of business ing out exploration and production drilling for water, oil and processes is continually opening up new areas of potential gas, as well as for coal-gas and geothermal energy. synergies. Further interesting potential for improving effi- ciency and cutting costs is offered by global cross-match- By establishing new subsidiaries in the Resources seg- ing of inventories, enabling stock levels to be minimized; ment, our environmental business has succeeded in mov- global standardization of hardware and software, resulting ing out of its traditional, and limited, sphere of pollution re- in reduced cost; and the facility to deploy IT service staff mediation into industrial process water treatment, and thus globally, in different time zones all around the world. into the oil and gas industry. The vast quantities of industrial process waters occurring in oil production, against a back- ground of ever more stringent environmental standards, offer additional outstanding market opportunities for our environmental business. GROUP MANAGEMENT REPORT 67 Opportunity and Risk Report

OVERALL OPPORTUNITIES We are seeing a steady improvement in our opportunities is enabling us more and more effectively to generate speed on global markets as the impact of the financial market cri- and cost benefits from the associated economies of scale. sis fades and as our recently created Resources segment All in all, we regard the opportunities for our Group's world- becomes increasingly well established. Our strategy of wide business as having increased again in the reporting systematically interlinking our mainly small and medium- period. sized globally operating units to create efficient networks

< With the local subsidiary, Bauer laid the foundations for the branches of the Guggenheim Museum and the Louvre <

< in Abu Dhabi.

GROUP MANAGEMENT REPORT 69 Outlook

X. OUTLOOK

The last two years, 2009 and 2010, have been difficult, and capable of devising special proposals which time and again have had a major negative impact on the business figures are translated into major projects. In the Resources seg- of our Group. The main reason for this trend was the finan- ment, we are aided by our very broad-ranging scope, in- cial market crisis, which brought great uncertainty to inter- corporating a wide variety of disciplines which so far no national markets, resulting in very substantial declines on other company has been capable of bringing together. some of them. Thanks to the cooperation between these different depart- ments, all targeted at a single shared goal, we are able to All businesses must utilize such years in order to rethink handle extremely challenging tasks with a high degree of and reshape the future. The member companies of the success. In the past year this expertise has opened up a BAUER Group undertook wide-ranging measures and ac- series of new opportunities which we will be pursuing with tivities in order to position themselves even better on their even greater vigour in future. respective markets and to align their products more closely to their customers' needs. All segments carried In order to achieve even greater success on international out reorganization. The machinery business developed markets in the face of increasing competition, we have des- new equipment, and the productivity of its manufacturing ignated productivity, safety and quality as core areas of plants was improved. We are at present working inten- focus for our work to which we are devoting special efforts. sively to optimize our development activities so that they Improvements in productivity are being driven forward with are more closely attuned to our product groups. In the great commitment at all plants and on all construction sites. Resources segment, we are utilizing our strengths ever With regard to safety, we have reorganized our operational more effectively to enter entirely new market sectors, re- structures and will be recruiting additional personnel in order sulting in a substantial increase in orders in hand. to boost our standards much higher still. Quality is a subject which relates to every area of the business. A company can It is of course also true that new risks arise over time. We only survive and prosper on the market nowadays if it deliv- are, for example, watching the development of our machin- ers strong performance in terms of quality. We will meet ery competitors in China very closely. Although there are still these demands by applying even greater efforts. major differences in the quality of the equipment, the era of simple copying is past. It is quite natural that well trained As opportunities increase again, we will cautiously resume engineers – of whom there are very many in China – should the expansion of our international locations in the coming wish to develop something of their own, and that is what we years. In 2011 we will be establishing a new small-scale are increasingly observing among our Chinese competitors. machinery manufacturing and servicing facility in Malaysia. The challenge for us is to maintain our rate of innovation in The lease on our site in Singapore will shortly be running order to hold onto our clear competitive edge. All of our em- out, so some investment will be due there too. For the ployees are well aware of this challenge, and it is an area in same reason, in the coming years we will be investing in a which we are making very great efforts. We are additionally new plant in China, at the Tianjin location near Beijing. opening up new markets with new products for deep drilling Pleasingly, China now also allows very long-term leases. and for offshore applications, which we believe will see sig- We will be building dedicated facilities for equipment servic- nificant increases in demand over the coming years. ing in a number of countries over the coming years in order to safeguard our high standards. In our service businesses it is very important that we deliver cutting-edge, high-end solutions for our customers. We The key factor in terms of our future success is the market. have a long-standing tradition in this respect in our Con- In planning for 2011, we discussed the markets and ana- struction segment, and we have an outstanding workforce lyzed opportunities in all areas of our businesses. Many

<<< In Oman, the BAUER Environment Group constructed the world's largest commercial reed-bed treatment plant. Covering an area of some 235 hectares, it can treat 47,000 cubic metres of oil-contaminated water per day. GROUP MANAGEMENT REPORT 70 Outlook

measures to improve our performance resulted from this opening up new markets based on our previous existing ca- process. The sum of all planning procedures brought a pacities. And building up capacities in other regions and cur- pleasing outcome: We forecast that we will be able to rency zones has proved key to safeguarding the business achieve healthy growth rates again in all three segments in against global upheaval in times of crisis. We are pleased to 2011. In the Resources segment, this forecast has already have taken the right action in the past. been largely underpinned by high levels of orders in hand. In the Construction segment too, there are already discernible The greatest opportunity for the Group is presented by our signs on almost all markets that we will be able to meet our international network spanning all areas of operations. Our planned targets. On some markets the situation looks par- global presence enables us to identify wide-ranging oppor- ticularly healthy, such as in the Far East, the USA and the tunities on local markets. All the various segments help Arab region. Many major projects in regions all around the each other out, especially in difficult times, in identifying world will deliver additional opportunities for us to maintain attractive projects and acquiring the relevant contracts. We positive growth in future. As the equipment selling business will continue to work intensively on building this strength. is characterized by relatively short-term transactions, it is the area in which the fewest actual figures are available as a We see no need to change our strategic objectives at pres- basis for forecasting. Nevertheless, trends from the past ent. The strategic approach involving the Construction, year and estimates by our sales staff do enable us to make Equipment and Resources segments will dictate the direc- approximate forecasts for the future. The trend is discernibly tion of the Group over the coming years. In the Resources positive to a slight degree; the prospects are encouraging. segment, we will be making concerted efforts to further This instills us with confidence that we will again be able to broaden the international scale of the business and to in- generate a small amount of growth in our traditional busi- crease the segment's share of total revenues. We will ness with specialist foundation engineering equipment of all round off and appropriately expand our market offer based kinds. The sales which we expect from our new products on in-house development efforts and minor acquisitions. will deliver additional growth above and beyond this. Our primary aim in undertaking acquisitions is not so much to increase revenues as to incorporate interesting new We do of course also see the many regional risks posed techniques into the Group's activities which can then be by political upheaval and conflict in a number of regions quickly launched onto global markets through our interna- around the world. However, based on the fact that we have tional network. We thus aim to combine our strengths with registered companies or agency representations in some those of innovative smaller companies. In view of our inter- 70 countries, and carry out works in even more, we do not national market presence, we see no benefit in acquiring regard the risk to which we are exposed as being major. large companies. This would merely reduce the opportuni- Our sales in each country as a percentage of the total busi- ties for both companies. ness are so small that even severe declines would not be able to damage us excessively. We nevertheless also hope Based on the information available to us at the time of writ- that the conflicts and problems will be resolved, so en- ing this report, at the end of March 2011, we forecast that abling us to take all the opportunities which arise. total Group revenues will be EUR 1.4 billion. We aim to in- crease after-tax earnings to over EUR 45 million, equating The capital investments made during the boom years unfor- to EBIT of approximately EUR 95 million. tunately also presented an additional burden in the crisis. We have been asked many times whether we were right to un- There will again be some discrepancies in terms of year-on- dertake them from today's viewpoint. Our answer is a very year comparisons in 2011, as last year fluctuated greatly in clear "yes". Even in the crisis, we saw that our new plant fa- its course. We forecast that the first quarter will show a cilities enabled us to improve our productivity in many areas. loss, though one which we will be able to turn around over Moreover, they were an essential prerequisite for production the subsequent quarters. Thus the trend over the year will of our new deep drilling rigs and offshore drilling equipment. return to those seen earlier in our history, with fewer ma- We would never have been able to pursue such a strategy of chines being sold at the start of the year as customers only GROUP MANAGEMENT REPORT 71 Outlook

start buying when the season begins. In the Construction The Management Board will recommend to the Supervisory segment, the winter period has a heavy impact on a num- Board that it propose to the Annual General Meeting the ber of our markets. payment of a dividend of EUR 0.60 per share, at the same level as the previous year. This will involve a total dividend The crisis was still impacting heavily on the balance sheet at payment of EUR 10.3 million, corresponding to a dividend the end of 2010. Receivables remained high, as did invento- ratio of approximately 30 percent referred to the net profit ries, because we had been forced to extend advance order for the period less minority interests. Our aim in this is to times for components and machinery again due to the up- fulfil the interests of our shareholders, as well as those of turn in other metal industry fields. The financing of the major the business, in a responsible manner. project in Oman, which is of great importance to us, also ex- tended our balance sheet. All in all, our net assets relative to We do not see any existential risk or relevant risk to future sales are still too high. Our balance sheet ratios will improve progress in our trading environment. However, the global slightly in the coming year based on the planned significant economy remains fundamentally subject to many fluctuat- rise in sales and on measures to limit working capital. A ing factors, including the declining effects of the financial pleasing factor is that we are in a position to move ahead market crisis and the popular uprisings in the Middle East, with an equity ratio still above 33 percent. which may also have a negative impact on our business. We should also point out that future forecasts are based on We expect the Group to enjoy positive development assumptions and estimates of the company management. through 2011 and 2012. We are again planning for growth Such assumptions and estimates always entail a degree of of between 5 and 10 percent, in line with our long-term uncertainty and risk, which may mean that actual perform- plans. We expect earnings to progress similarly. The Group ance differs from that forecast has a sufficiently broad base also to balance out further ex- pected fluctuations on markets.

Schrobenhausen, March 31, 2011

BAUER Aktiengesellschaft

Prof. Dipl.-Kfm. Thomas Bauer Dipl.-Betriebswirt (FH) Hartmut Beutler Dipl.-Ing. Heinz Kaltenecker Chairman of the Management Board 72

The Bauer Share

Strong upturn in the German economy Looking at stock market trends, they too reflected the There were signs of a burgeoning recovery in the German positive economic development. The DAX index rose economy even back in 2009. Economic expectations, in- from 5,957 points at the start of the year to 6,914 at the cluding the ifo business climate index, have been on a sus- year-end. The S&P 500 rose 12.6 percent, closing at 1,257 tained upward trajectory ever since. points.

A wide range of policy measures implemented by the A volatile year for the Bauer share German government, including in relation to short-time The Bauer share had a very positive start to 2010. From working, investments in infrastructure, the Special Financial its opening price of EUR 29.47, it surpassed the EUR 35 Market Stabilization Fund (SoFFin) and the sustained low- mark in just a few days. It subsequently lost ground interest rate policy of the European Central Bank led to an almost as rapidly as it had risen, though by mid-April it unexpectedly strong upturn in the German economy in had picked up again, outperforming both the DAX and 2010. GDP grew by 3.6 percent; employment levels and SDAX indices. The year high of EUR 36.81 was reached consumer spending also rose. Alongside its healthy do- on April 14. mestic economy, Germany was also able to profit from strong exports. This was particularly marked in the manu- From then on the Bauer share's performance fell back, facturing industry, which saw a return to strong growth of and on July 1 it reached its low for the year of EUR 27.38. 10.1 percent after having suffered a severe decline in 2009. This was followed by another rapid recovery, so that by A key factor in this was the substantial rise in capital invest- as early as mid-August it was back above the EUR ment in equipment. 34 mark. After a period of relative stability, the share came under renewed pressure due to its reassignment to However, some degree of uncertainty still remains. It was the SDAX with effect from September 20. By September not only in Germany that the measures taken entailed a rise 27 it had fallen to EUR 29.97. in debt levels. Other countries, such as Portugal, Greece and Ireland, suffered severely under the crisis. The interest The share price stabilized for a time at that level, and by rates on those countries' government bonds rose signifi- November 8 had recovered to EUR 34.07. After the publi- cantly. On the other hand, the Far East is booming – espe- cation of the company's figures for the first three quarters cially China, which is seeing economic growth of over and the related ascertainment of the full-year forecast, the 10 percent. This is further intensifying the global economic price fell once again, reaching EUR 30.31 by the end of imbalance. the month.

DEVELOPMENT OF THE BAUER SHARE PRICE IN 2010

in % Bauer DAX MDAX SDAX

60 31.12.2010 50

40

30

20

10

0

(10)

(20) 01.01.2010 24.04.2010 16.08.2010 07.12.2010 31.03.2011 THE BAUER SHARE 73

In the final weeks of the year the Bauer share's perform- SHARE INFORMATION ance was strong, rising to a closing price for the year of ISIN DE0005168108 EUR 35.30. WKN 516810 Deutsche Börse B5A The Bauer share price was marked by some volatility through trading symbol the year, yet it ultimately rose 19.8 percent overall. It thus Trading segment Official market, Frankfurt Stock Exchange outperformed the comparative index, the DAX (+14.3 per- Share indices SDAX, CDAX, GEX, DAXPlus Family cent), though its performance lagged well behind the gains Classic All Share, Prime All Share achieved by the SDAX (+42.8 percent). Share category No-nominal-value individual bearer shares Share capital EUR 73,001,420,45 Shareholder Dialogue with stakeholders Bauer family 48.19 %, free float 51.81 % structure Sustained commitment to investor relations, an open infor- mation policy practised by the Management Board in relation Dividend policy to shareholders, analysts and investors alike, and dialogue Providing our shareholders with appropriate returns on their with the various stakeholders are key areas of focus for us. investment is an integral element of our business, and is a key factor in building and sustaining close, mutually beneficial A total of 15 analysts published regular reports on Bauer. relationships with investors. And the company's reassignment to the SDAX index in September failed to halt the surge of interest in the com- Our dividend policy is founded on the three key pillars of pany. Many investors took the opportunity to exchange yield, continuity and safeguarding of the equity base. In the views with the Group Management Board at conferences wake of the financial market crisis especially, it was a stated and roadshows held in the world's major financial centres aim of the company to secure an adequate equity ratio. This such as London, New York, Frankfurt and Zurich. And is a vital factor, among other considerations with a view to the events were also hosted in other locations, such as Paris, future strategy and ongoing development of the Group. Amsterdam and Stockholm. After having decreased to 33.9 percent in 2009, in the past The interest of private shareholders, who attend the year the equity ratio remained almost constant at 33.2 percent. Annual General Meeting at the company headquarters in Schrobenhausen every year, likewise remains strong. In As the after-effects of the crisis have not yet been fully over- 2010, Professor Thomas Bauer welcomed some 600 come, we plan to maintain the dividend at the previous year's shareholders and guests to the event held in the com- level. pany's Old Welding Shop building. In his presentation, Professor Bauer set out a detailed report on the state of The Management Board and Supervisory Board will propose the business and offered a wide-ranging picture of the to the Annual General Meeting on June 30, 2011 that a divi- Group's various construction activities on every continent. dend of EUR 0.60 per share be paid.

KEY FIGURES 2008 2009 2010 Number of shares 17,131,000 17,131,000 17,131,000 Earnings per share EUR 6.09 EUR 2.28 EUR 2.04 Dividend per share EUR 1.00 EUR 0.60 EUR 0.60 * Year closing price EUR 29.45 EUR 29.25 EUR 35.30 Year high EUR 70.12 EUR 34.45 EUR 36.81 Year low EUR 17.64 EUR 20.64 EUR 27.38 Market capitalization at year-end EUR 504,508 thousand EUR 501,082 thousand EUR 604,724 thousand Average monthly trading volume (number of shares) 89,300 86,400 46,084

* Proposed; subject to the consent of the Annual General Meeting to be held on June 30, 2011 74

Declaration on Corporate Governance / Corporate Governance Report

The Management Board, also on behalf of the Supervisory 3.Contrary to Articles 5.1.2 and 5.4.1, no age limit is Board, submits the following report on the company's Cor- specified for members of the Management Board or porate Governance in accordance with Article 3.10 of the Supervisory Board. Expertise and performance cannot German Corporate Governance Code. The Corporate Gov- be determined on the basis of rigid age limits. Upon the ernance Report also includes the Declaration on Corporate appointment of new Management Board and Supervi- Governance pursuant to Article 289a of the German Com- sory Board members, the persons who bear responsibil- mercial Code (HGB) as well as the Remuneration Report. ity for selecting suitable members will take account of the age of the chosen person when reaching their decision, Declaration of Conformity 2010 alongside assessing their skills. If a Management Board BAUER AG fundamentally applies the German Corporate or Supervisory Board member should become no longer Governance Code, in its latest respective version. In their sufficiently capable of holding office on the grounds of annual Declaration of Conformity of December 9, 2010, the age during their term of office, the common sense of the Management Board and Supervisory Board of BAUER AG persons involved is to be trusted. issued the following statements regarding the company's non-conformity to some of the recommendations and sug- 4. Contrary to Article 5.4.6, the members of the Supervisory gestions set out in the Code: Board receive only a fixed amount of remuneration, and no performance-related component. The agreement of solely "Since the last declaration in December 2009 the company a fixed amount of remuneration is intended to reflect the has complied with, and currently complies with, each independence of the Supervisory Board. Its supervisory of the recommendations of the Government Commission function is to be independent of monetary incentives. of the German Corporate Governance Code as published by the German Federal Ministry of Justice in the official sec- 5. Contrary to Article 7.1.2, the consolidated financial state- tion of the electronic version of the German Federal Gazette ments at December 31, 2009 were made public within ("Bundesanzeiger"), with the following exceptions: 110 days rather than 90 days of the end of the financial year. As a result of the international structure of the Group, 1. Contrary to Article 3.8, an excess of at least 10% of the the completion and consolidation of the separate financial loss up to at least an amount representing one and a half statements takes a considerable amount of time. In the times the fixed annual remuneration of Supervisory Board interests of conscientious accounting processes, efforts members is not agreed in the D&O insurance policy. As a to improve the accounting procedures continue. result of the moderate remuneration provisions for the Supervisory Board in the Articles of Association, a cor- Furthermore, BAUER Aktiengesellschaft already conforms responding excess for the Supervisory Board is not ap- largely to the additional suggestions of the Government proved. Even without such an excess, the Supervisory Commission on the German Corporate Governance Code." Board members will perform their duties responsibly. In financial 2010, within the implementation period allowed 2. Contrary to Article 4.1.5, Article 5.1.2 and Article 5.4.1, by law, provision was made in the D&O insurance policy for there is no appropriate inclusion or participation of women a statutory excess of at least 10 percent of the loss up to at in the filling of management positions or in the composi- least an amount representing one and a half times the fixed tion of the Management Board and the Supervisory Board. annual remuneration for the members of the Management In particular, the introduction of a quota for women in Board. Moreover, the D&O insurance policy also provides order to ensure equal opportunities is not supported. for an excess in respect of the Supervisory Board, though These positions should be filled regardless of gender so not to the level stipulated by law for the Management Board. that neither the female gender nor the male gender is favoured or discriminated against. In addition, a candi- Roles of the Management Board and Supervisory Board date should not suffer any disadvantage on the grounds BAUER AG is a stock corporation established pursuant to of racial or ethnic origin, religion or belief. German law. Consequently, the collaboration between the DECLARATION ON CORPORATE GOVERNANCE / CORPORATE GOVERNANCE REPORT 75

Management Board and Supervisory Board is oriented in ness development, risk, risk management and compliance particular to the provisions of the German Stock Corpora- relevant to the company. It reports any deviation of busi- tion Act (AktG) and to the recommendations and sugges- ness performance from defined plans and targets, setting tions set out in the German Corporate Governance Code, out the reasons as appropriate. in which the dual system of corporate governance is em- bedded. Moreover, the company's Articles of Association, The role of the Supervisory Board is to advise and supervise the rules of procedure governing the Supervisory Board the Management Board on a routine basis in its manage- and its subcommittees and those governing the work of the ment of the company. It is involved in all decisions of fun- Management Board also lay down the basic structures of damental importance to the company. The company's Arti- collaboration between the executive bodies of the company. cles of Association stipulate relevant transactions and under-takings which require the consent of the Supervisory The Management Board manages the company under its Board. The Chairman of the Supervisory Board coordinates the own responsibility and in the interest of the company and its work of the Supervisory Board, chairs its meetings and stakeholders – that is to say, giving due consideration to the represents the Supervisory Board externally. interests of its shareholders, employees and other related parties – with the aim of creating value on a sustainable, The Management Board employs the Corporate Manage- lasting basis. It devises the corporate strategy, agrees it in ment Manual implemented throughout the Group as its consultation with the Supervisory Board, and ensures that it central instrument of management. The Corporate Man- is implemented. In fulfilling that role, the Management Board agement Manual also sets out the framework policy guide- must ensure compliance with all legal requirements and in- lines covering the entire Group, and lays down the princi- ternal corporate guidelines, and acts to ensure that the ples of corporate governance which form the basis for the Group's member companies comply in like manner. The ethical and moral conduct of the company's employees in Management Board bears overall responsibility for manag- carrying out the business of the company. An appropriate ing the business of the company. Notwithstanding the over- system of risk management and of internal controls is es- all responsibility of the Management Board, each member tablished within the company. The Management Board of the Management Board acts on his or her own responsi- regularly updates the Supervisory Board on existing risk bility within his or her assigned portfolio of functions, though and risk trends. The essential features of the risk manage- always with the obligation to subjugate the interests of the ment and control system are summarized in the Opportu- specific function to the general good of the company. The nity and Risk Report forming part of the Group Manage- Chairman of the Management Board coordinates the work ment Report. The Management Board regularly updates of the Management Board. The Management Board mem- the Supervisory Board on existing risk and risk trends. bers report on a regular basis to the Chairman of the Man- agement Board in respect of all material matters and on the Composition of the Supervisory Board course of business within their assigned functions. The The Supervisory Board of BAUER AG consists of 12 mem- Chairman of the Management Board coordinates all matters bers, of whom six represent the employees and six are specific to individual functions in line with the overall objec- elected by the Annual General Meeting to represent the tives and plans of the company. He consults the other Man- shareholders. The period of office of the members of agement Board members where matters relate to their as- the Supervisory Board finishes with effect from the end of signed functions. Matters subject to the decision-making the 2011 Annual General Meeting at which the actions of authority of the full Management Board are laid down in the the members of the Supervisory Board during the 2010 rules of procedure governing the Management Board. financial year are ratified. The Supervisory Board includes a sufficient number of independent members who have The Management Board provides the Supervisory Board no business or personal links to the company or to the with regular, detailed information, in written form by way of Management Board. There were no conflicts of interest monthly reports as well as verbally at meetings held on a among members of the Supervisory Board in the financial quarterly basis, in respect of all matters of planning, busi- year. 76 DECLARATION ON CORPORATE GOVERNANCE / CORPORATE GOVERNANCE REPORT

Objectives of the Supervisory Board with regard to its Board. The committee chairmen report to the plenary Super- composition visory Board on a regular basis with regard to the work of At its September 2010 meeting, the Supervisory Board their respective committees, and prepare the way for plenary formulated the following objectives with regard to its com- Supervisory Board decisions within their specific remits. position, all of which are fulfilled by the current structure: The Presidial and Personnel Committee comprises the The Supervisory Board shall be composed such that its Chairman of the Supervisory Board as well as one Super- members collectively possess the necessary skills, knowl- visory Board member elected by the shareholder represen- edge and professional experience to carry out its assigned tatives and one by the employee representatives respec- role in a correct and proper manner. tively. Its role includes preparing the way for Supervisory Board decisions relating to the setting of overall remunera- The appointment of shareholders' representatives to the Super- tion to individual Management Board members and to the visory Board shall take due account of the Group's funda- remuneration system for the Management Board in general, mental character as a family business, giving due consider- as well as responsibility for establishing, amending and ter- ation to the implications of that character in terms of the minating service contracts with the members of the Man- corporate culture, whereby two members shall be appointed agement Board. It also concerns itself with matters relating from the Bauer family, provided the candidates are suitable. to corporate governance.

At least two of the shareholders' representatives on the The Audit Committee comprises three members. The chair- Supervisory Board shall have substantial experience in the man of this committee possesses specific knowledge and management of construction and/or construction machinery experience in the application of accounting policies and in- manufacturing companies. ternal control procedures, and is neither a former member of the company's Management Board nor the Chairman of the At least one of the shareholders' representatives on the Supervisory Board. The role of the Audit Committee is in Supervisory Board shall possess specialist skills and experi- particular to monitor accounting procedures and to review ence in the application of financial reporting standards and the efficacy of the system of internal controls, the risk man- the implementation of internal control procedures. agement system and the internal auditing system. The Audit Committee prepares the proposal of the Supervisory Board The employees' representatives on the Supervisory Board to the Annual General Meeting concerning the appoint- shall be elected in accordance with the provisions of the ment of auditors. It undertakes a preliminary review of the German Employees' Co-Determination Act. annual financial statements of the parent company and the consolidated financial statements of the Group together Supervisory Board posts shall be filled on merit, regardless with the respective management reports, as well as pre- of gender, so that neither men nor women are preferred or paring the proposal on appropriation of net earnings avail- disadvantaged. Moreover, when appointments are made to able for distribution and consulting on the audit reports with the Supervisory Board no candidate shall be disadvan- the auditors. It also reviews the quarterly financial reports. taged for reasons of race, ethnic origin, religion or world view. The Nominations Committee comprises three shareholder- representative members of the Supervisory Board. The task Composition and roles of the subcommittees of the Nominations Committee is to submit to the Super- The Supervisory Board has established four standing sub- visory Board proposals of suitable candidates to be put committees constituted from among its members. The rules forward to the Annual General Meeting for election to the of procedure governing the Supervisory Board stipulate the Supervisory Board. respective competencies of its subcommittees. The sub- committees make preparations prior to resolutions being The Mediation Committee, constituted pursuant to the Ger- passed and issues being considered by the full Supervisory man Co-determination Act, comprises two shareholder- DECLARATION ON CORPORATE GOVERNANCE / CORPORATE GOVERNANCE REPORT 77

representative and two employee-representative members parties with regular and timely information relating to the respectively. The Mediation Committee was not required to position of the company and in respect of material changes convene in the course of the financial year in fulfilment of its to the business. Extensive documentation and information re- assigned function pursuant to the Co-determination Act. sources, as well as a financial calendar listing the key recur- ring publication dates and the scheduled date of the Annual Shareholders and Transparency General Meeting, are provided on the company's website. The shareholders assert their rights at the Annual General Meeting, where they also exercise their voting rights. Each Four times a year, BAUER AG publishes updates on the share entails one vote. The Ordinary Annual General Meet- course of its business in the form of quarterly reports, the ing of shareholders in the 2010 financial year was con- half-year interim report and the annual financial statements. vened by the publication of all documentation pertaining to Insider information relating directly to the company is pub- agenda matters. At the said Ordinary Annual General lished immediately. As soon as the company becomes aware Meeting, the annual financial statements of the parent that someone has reached, exceeded or fallen below the company and the consolidated financial statements of the statutory reporting thresholds with regard to voting rights in Group for the 2009 financial year were presented to the company, by way of acquisition or sale or in any other shareholders. The pro-posals of the Management Board way, the Management Board immediately publicizes the regarding the appropriation of net profit available for distri- fact. 10 notifications relating to voting rights were issued in bution, the ratification of the actions of the members of the the 2010 financial year. In order to provide shareholders Management Board and the Supervisory Board for the and investors with information in a prompt and consistent 2009 financial year, the election of auditors of the annual manner, electronic channels of distribution, including the financial statements of the parent company and the con- electronic version of the German Federal Gazette ("Bundes- solidated financial statements of the Group for the 2010 anzeiger") and the company's website, are used. financial year, the authorization of the Management Board to acquire and appropriate treasury stock with the possi- Shareholdings of the Management Board and Super- bility to exclude the subscription rights and any tendering visory Board of delivery rights of the shareholders, and the resolution on No acquisitions or sales of shares in BAUER AG or of finan- amendments to the Articles of Association were all ap- cial instruments linked to them by members of executive proved by the attending shareholders with majorities of bodies of the company were published by BAUER AG over 99 percent in each case. The Annual General Meeting in the 2010 financial year. Members of the Management further approved the system of remuneration for members Board at the year-end held a total of 2,676,016 (previous of the Management Board presented to it with a majority year: 2,678,166) shares in the company as of December of over 84 percent of the votes cast. The shareholders were 31, 2010. This corresponded to 15.62 percent (previous assisted in exercising their voting rights by the facility to year: 15.63 percent) of the share capital of BAUER AG. assign proxy voting power to nominees and by the appoint- Members of the Supervisory Board held a total of 2,164,818 ment of a company proxy to vote in accordance with the (previous year: 2,164,818) Bauer shares at the same date, shareholders’ instructions. An electronic transfer facility was corresponding to 12.64 percent (previous year: 12.64 per- also provided for the submission of proxy voting power. cent) of the company's share capital.

No company share option schemes or similar stock incen- Remuneration Report tive programmes existed during the past financial year Explanatory notes on the remuneration paid to the Man- either for the employees of the BAUER Group or for the agement Board and Supervisory Board are set out in the members of the company's Management Board and Super - Remuneration Report forming part of the Group Management visory Board. Report on pages 47 to 49 of this Annual Report. The Remuneration Report is included in the present Corporate The company provides its shareholders, shareholders' Governance Report, and is to be seen as a component associations, financial analysts, the media and all interested part of it. 78

Report of the Supervisory Board 2010

In financial 2010 the Supervisory Board fulfilled the tasks The meetings of the various subcommittees of the Super- incumbent upon it in accordance with the law, the com- visory Board in the financial year were attended by all the pany's Articles of Association and the rules of procedure respective members. All except one of the plenary meet- and gave detailed consideration to the business develop- ings of the Supervisory Board were attended by all mem- ment of the Group. We routinely provided the Management bers. All members of the Management Board attended the Board with advice and support on the conduct of business, meetings of the Supervisory Board. and monitored its management activities. At the annual accounts review meeting relating to the an- At our meetings, the Management Board provided us with nual financial statements and Group consolidated financial detailed, timely and comprehensive written and verbal reports statements for the 2009 financial year, also attended by on the course of business, the position of the parent com- the auditors, a detailed review was undertaken of the re- pany and the Group as well as on corporate strategy and spective financial statements, the associated management planning. The Management Board also provided the Super- reports, taking into due consideration the report from the visory Board with regular, timely and comprehensive reports Audit Committee, and the proposal of the Management outside of the meetings. Between the meetings, the Man- Board with regard to the appropriation of earnings. Other agement Board submitted monthly written reports on all major topics discussed at the meeting were the Group's fi- important business transactions as well as on trends in key nancing, the preparations for the upcoming Annual Gen- financial indicators of the Group and the parent company. eral Meeting, the course of business in the current financial year against the backdrop of the crisis-hit previous year, The Chairman of the Supervisory Board was also in regular the extension of the period of office of the Chairman of the contact with the Management Board outside of the Super- Management Board and the structuring of the remunera- visory Board meetings, and gathered information as appro- tion paid to the Management Board. At its second meeting priate relating to the course of business and key transac- of the financial year the Supervisory Board considered the tions. In this way the Supervisory Board was kept continu- Interim Report on the first quarter of 2010, the develop- ally informed as to intended business policies, corporate ment of the Group's business in 2010, and the corporate planning, including financial, capital investment and person- culture. At its September meeting, the Supervisory Board nel planning, the company's profitability and the course of focused on the Group's medium-term financial planning business, as well as with regard to the position of the company and on the amendments to the German Corporate Gover- and the Group as a whole. The Chairman of the Supervisory nance Code. It also discussed the upcoming resignation of Board once again accompanied the Chairman of the Man- Mark Schenk from the parent company's Management agement Board on trips to subsidiaries outside Germany. Board, which was reaffirmed subsequently by a written special resolution. With regard to the trends in the 2010 fi- Main focus of consultations in Supervisory Board meetings nancial year, at its December meeting the Supervisory Four plenary meetings of the Supervisory Board were held Board discussed the ongoing order situation with the in the year under review. In preparation for each meeting, Management Board, as well as giving its consent to the those attending were furnished by the Management Board planning for financial 2011. That same meeting also con- with a comprehensive and detailed preliminary report setting sidered the declaration of conformity to the German Cor- out current business developments, financial trends and the porate Governance Code as well as the performance latest corporate planning. At the meetings, the written reports bonus framework. were expanded upon by the Management Board and scruti- nized by the Supervisory Board members. The economic Work carried out by the subcommittees situation portrayed in the reports of the Management Board In the 2010 financial year there were four subcommittees of and the prospects for the development of the Group, its indi- the Supervisory Board. The Mediation Committee and the vidual segments and key subsidiaries in Germany and interna- Nominations Committee were not convened. The chairmen tionally, as well as construction projects and machinery devel- of the various subcommittees submitted regular reports on opments of special note, were discussed at all the meetings. their work to the plenary Supervisory Board meetings. REPORT OF THE SUPERVISORY BOARD 79

Three meetings of the Presidial and Personnel Committee the Group, as well as the respective management reports, were convened. In preparation for resolutions by the Super- including the bookkeeping, were audited by the auditors visory Board, they gave consideration to the extension of elected by the Annual General Meeting and duly appointed the period of office and the contract of employment of by the Supervisory Board, PricewaterhouseCoopers Chairman of the Management Board Professor Thomas Aktiengesellschaft und Wirtschaftsprüfungsgesellschaft, Bauer, the reduction of the Management Board to three Stuttgart. The accounts were certified by the auditors with- members, the associated termination of service of Manage- out reservation. The Audit Committee subjected the audit ment Board member Mark Schenk and related contractual documentation and reports to thorough scrutiny in the pres- matters, and the service contract of a member of the Su- ence of the auditors. The Committee reported on its review pervisory Board. Preparations were additionally made for to the Supervisory Board. The auditors attended the rele- the decision of the Supervisory Board relating to the setting vant meetings of the Audit Committee as well as the annual of the salaries and performance bonuses of the members accounts review meeting of the plenary Supervisory Board. of the Management Board and to the structuring of its re- muneration system. Consideration was also given to the The audit documentation and reports from the auditors declaration of conformity to the German Corporate Gover- were furnished to all members of the Supervisory Board in nance Code as well as the performance bonus framework. good time for scrutiny. Following our own review of the an- nual financial statements of the parent company and the The Audit Committee held three teleconferences and three consolidated financial statements of the Group, together attended meetings in financial 2010. committee reviewed the with the respective management reports, we duly noted the audit of the interim reports and, in the presence of the audi- auditors' reports and concurred with their findings. No ob- tors, the audit of the annual financial statements of the par- jections were raised. The financial statements of BAUER AG ent company and consolidated financial statements of the and the consolidated financial statements of the Group Group. It also scrutinized the Management Board's proposal were approved by the Supervisory Board at its annual ac- regarding the appropriation of earnings. The Audit Commit- counts review meeting on April 14, 2011. The annual finan- tee also made preparations for the appointment of the audi- cial statements of BAUER AG were thereby confirmed. The tors for financial 2010, including scrutinizing their independ- Supervisory Board concurred with the content of the parent ence. At two meetings the Audit Committee considered company and consolidated Group management reports. primarily the effects of amendments to national and interna- tional financial reporting standards on the financial reporting Following prior consultations by the Audit Committee, the of the parent company and the Group, the Group's system Supervisory Board concurred with the proposal of the Man- of risk management, the system of internal controls and agement Board regarding the appropriation of net profit internal auditing, and discussed compliance-related matters. available for distribution.

Auditing of 2010 annual and consolidated financial The Supervisory Board would like to thank the Manage- statements ment Board, all the employees of the company and the The annual financial statements of BAUER AG to Decem- employees' representatives for their commitment and ber 31, 2010 and the consolidated financial statements of achievements over the past year.

Schrobenhausen, April 2011 The Supervisory Board

Dr. Klaus Reinhardt Chairman of the Supervisory Board

81

Balance Sheet and Income Statement of BAUER Aktiengesellschaft in accordance with HGB

82 Income Statement of BAUER Aktiengesellschaft

83 Balance Sheet of BAUER Aktiengesellschaft as at December 31, 2010 2010 ANNUAL FINANCIAL STATEMENTS

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Income Statement of BAUER Aktiengesellschaft

in EUR '000 01.01. - 31.12.2009 01.01. - 31.12.2010

1. Sales revenues 25,908 26,590

2. Other operating income 1,158 1,848

27,066 28,438

3. Cost of materials -1,345 -1,631

4. Staff costs -12,371 -12,701

5. Amortization of intangible assets and depreciation of property, plant and equipment -2,565 -2,914

6. Other operating expenses -9,483 -10,777

-25,764 -28,023

Operating result 1,302 415

7. Income from participations 30,492 3,861

8. Other interest and similar income 4,113 5,901

9. Interest and similar expenses -1,901 -3,206

Financial result 32,704 6,556

10. Result from operating activities 34,006 6,971

11. Extraordinary expenses 0 -141

12. Income tax expense -1,543 -969

13. Other taxes -18 -23

14. Net profit for the year 32,445 5,838

15. Profit carried forward 575 17,741

16. Net earnings available for distribution 33,020 23,579 EQUITY ANDLIABILITIES ASSETS gesellschaft asatDecember31,2010 Balance SheetofBAUERAktien- in EUR'000 Inventories I. Intangibleassets I. Fixedassets A. in EUR'000 .Subscribedcapital I. Shareholders' equity A. C. Liabilities C. IV. availablefordistribution Netearnings Revenuereserves III. Capitalreserve II. Cashatbanks III. II. Receivablesandotherassets II. Financialassets III. Property,II. plantandequipment D. Deferred taxassets D. B. Current assets B. B. Provisions B. C. Prepayments anddeferredC. charges Rawmaterialsandsupplies (ofwhichliabilitiespayabletoaffiliated companies) (ofwhichprofit carriedforward EUR17,741thousand;previous yearEUR575thousand) (ofwhichreceivables from affiliated companies) (ofwhichprovisions fordefinedbenefitplans)

(101,132) 31.12.2009 31.12.2009 109,385 105,479 215,493 155,802 215,493 109,096 54,506 98,765 33,020 10,000 39,781 73,001 (3,586) (9,741) 5,185 3,006 3,708 629 289 0 0 31.12.2010 31.12.2010 112,335 206,634 151,393 206,634 105,696 (92,220) 93,504 49,744 93,457 23,579 15,032 39,781 73,001 (5,601) (4,027) 5,497 3,320 3,319 175 620 18 29

2010 ANNUAL FINANCIAL STATEMENTS 83 84 85

Consolidated Financial Statements in accordance with IFRS

86 Income Statement of the BAUER Group

86 Statement of Comprehensive Income of the BAUER Group

87 Cash Flow Statement of the BAUER Group

88 Balance Sheet of the BAUER Group as at December 31, 2010

90 Statement of Changes in Equity of the BAUER Group

91 Notes to the Consolidated Financial Statements of the BAUER Group

154 Declaration of the Management Board

155 Auditors' Report 2010 FINANCIAL STATEMENTS CONSOLIDATED

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Income Statement and Statement of Comprehensive Income of the BAUER Group

INCOME STATEMENT

in EUR '000 Notes 01.01. - 31.12.2009 01.01. - 31.12.2010

1. Sales revenues (5) 1,096,543 1,131,673 2. Changes in inventories * 20,738 36,221 3. Other capitalized goods and services for own account (6) 71,128 30,349 4. Other income (7) 37,632 57,357 CONSOLIDATED REVENUES 1,226,041 1,255,600 5. Cost of materials (8) -642,008 -626,952 6. Staff costs (9) -262,975 -282,506 7. Depreciation and amortization a) Depreciation of fixed assets (10) -58,578 -64,914 b) Write-downs of inventories due to use * (11) -14,427 -12,248 8. Other operating expenses (12) -163,690 -180,625 OPERATING RESULT 84,363 88,355 9. Financial income (13) 2,329 4,071 10. Financial expenses (14) -30,730 -36,400 11. Share of the profit or loss of associated companies accounted for using the equity method 3,541 1,436 PROFIT BEFORE TAX 59,503 57,462 12. Income tax expense (15) -17,475 -17,673 NET PROFIT OR LOSS 42,028 39,789 Profit attributable to minority interests -3,010 -4,760 Profit attributable to equity holders of BAUER Aktiengesellschaft 39,018 35,029

in EUR 01.01. - 31.12.2009 01.01. - 31.12.2010

Basic earnings per share (16) 2.28 2.04 Diluted earnings per share (16) 2.28 2.04 Average number of shares in circulation (basic) 17,131,000 17,131,000 Average number of shares in circulation (diluted) 17,131,000 17,131,000

* Previous year figures adjusted (for explanation see footnote on page 130)

STATEMENT OF COMPREHENSIVE INCOME

in EUR '000 01.01. - 31.12.2009 01.01. - 31.12.2010

Net profit or loss 42,028 39,789 Cash flow hedges Changes to fair value not affecting profit and loss recorded directly in shareholders' equity -3,296 -236 Included in the income statement 0 -49 Differences from currency translation -2,701 13,212 Deferred tax items set off directly against shareholders' equity 956 36 Income and expenses recorded directly in shareholders' equity -5,041 12,963 Total profit 36,987 52,752

Attributable to BAUER AG shareholders 34,553 48,227 Attributable to minority interests 2,434 4,525 87

Cash Flow Statement of the BAUER Group

in EUR '000 01.01. - 31.12.2009 01.01. - 31.12.2010

Cash flows from operating activities: Profit before tax 59,503 57,462 Depreciation of fixed assets 58,578 64,914 Write-downs of inventories due to use * 14,427 12,248 Financial income -2,316 -4,041 Interest expense 25,403 30,946 Other non-cash transactions * 4,240 28,630 Result from the disposal of fixed assets -4,118 -3,396 Increase (previous year: decrease) in provisions -474 5,068 Increase (previous year: decrease) in trade receivables 16,706 -48,488 Increase in receivables from construction contracts -26,011 -3,039 Increase (previous year: -) in receivables from concession arrangements --- -45,874 Increase in other assets and in prepayments and deferred charges -5,273 -7,014 Increase in inventories -56,474 -65,990 Increase (previous year: decrease) in trade payables -31,371 41,005 Increase in liabilities from construction contracts 2,779 7,837 Decrease (previous year: increase) in other current and non-current liabilities 5,338 -10,449 Cash and cash equivalents generated from day-to-day business operations 60,937 59,819 Income tax paid -15,119 -14,477

Net cash from operating activities 45,818 45,342 2010 FINANCIAL STATEMENTS CONSOLIDATED

Cash flows from investing activities: Acquisition of affiliated companies less net cash and cash equivalents procured -15,650 0 Acquisition of property, plant and equipment and intangible assets -128,291 -94,946 Proceeds from sale of fixed assets 17,610 19,354 Consolidation scope-related change in financial resources 4,233 102 Acquisition of financial assets (participations) 0 -28 Net cash used in investing activities -122,098 -75,518

Cash flows from financing activities: Proceeds from loans and liabilities to banks ** 137,505 105,159 Repayment of loans and liabilities to banks ** -10,597 -39,800 Repayment of liabilities from finance lease agreements -12,779 -8,784 Dividends paid -17,131 -10,738 Interest paid -25,414 -30,984 Interest received 4,644 2,997 Net cash used in financing activities 76,228 17,850

Changes in liquid funds affecting payments -52 -12,326 Influence of exchange rate movements on cash 237 2,886 Total change in liquid funds 185 -9,440

Cash and cash equivalents at beginning of reporting period 36,868 37,053 Cash and cash equivalents at end of reporting period 37,053 27,613 Change in cash and cash equivalents 185 -9,440

* Previous year figures adjusted (for explanation see footnote on page 130) ** Previous year figures adjusted; in the previous year the repayment of loans and liabilities to banks was shown, except for the change relating to the shift in the scope of consolidation, as a net balance under "Proceeds from loans and liabilities to banks". 88

Balance Sheet of the BAUER Group as at December 31, 2010

ASSETS

in EUR '000 Notes 31.12.2009 31.12.2010

A. NON-CURRENT ASSETS I. Intangible assets (17) 1. Concessions, industrial property rights and similar rights and values and licences to such rights and values 11,396 10,252 2. Goodwill 1,610 1,610 3. Capitalized software costs 567 454 4. Capitalized development costs 8,266 10,945 21,839 23,261 II. Property, plant and equipment and investment property (17) 1. Land, land rights and buildings 186,032 199,471 2. Investment property 2,196 2,136 3. Technical equipment and machinery 191,589 203,576 4. Other equipment, factory and office equipment 28,116 29,376 5. Payments on account and assets in course of construction 11,944 7,178 419,877 441,737 III. Investments accounted for using the equity method 11,023 10,792 IV. Participations 3,600 3,628 V. Deferred tax assets (18) 19,623 19,448 VI. Receivables from concession arrangements (19) --- 45,874 VII. Other non-current assets (20) 9,953 8,756 VIII. Other non-current financial assets (21) 31 108 485,946 553,604 B. CURRENT ASSETS I. Inventories (22) 1. Raw materials and supplies 105,350 106,388 2. King piles, sheet piles 1,840 2,065 3. Finished goods and work in progress and merchandise 256,505 308,846 4. Payments on account 2,980 3,118 366,675 420,417 II. Receivables and other assets (23) 1. Receivables from construction contracts (PoC) 54,229 57,267 2. Trade receivables 179,146 208,946 3. Receivables from joint ventures 1,030 6,012 4. Receivables from enterprises in which the company has participating interests 928 370 5. Other current assets 42,341 47,172 6. Other current financial assets 8,090 9,342 285,764 329,109 III. Effective income tax refund claims 9,723 7,006 IV. Cash and cash equivalents (24) 37,053 27,613 699,215 784,145 1,185,161 1,337,749 89

EQUITY AND LIABILITIES in EUR '000 Notes 31.12.2009 31.12.2010

A. SHAREHOLDERS' EQUITY (25) I. Subscribed capital 73,001 73,001 II. Capital reserve 38,404 38,404 III. Other revenue reserves 16,533 31,228 IV. Net earnings available for distribution 246,764 269,985 V. Minority interests 27,182 31,248 401,884 443,866 B. NON-CURRENT LIABILITIES (26) I. Non-current portion of liabilities to banks 322,104 342,165 II. Non-current portion of liabilities from finance lease agreements 18,798 18,757 III. Non-current portion of defined benefit plans (27) 44,783 47,380 IV. Other non-current liabilities 6,398 8,580 V. Other non-current financial liabilities 10,873 13,698 VI. Deferred tax liabilities (18) 19,591 17,294 422,547 447,874 C. CURRENT LIABILITIES (28) I. Liabilities

1. Current portion of liabilities to banks 95,953 141,252 2010 FINANCIAL STATEMENTS CONSOLIDATED 2. Advances received for orders 5,829 15,852 3. Liabilities from construction contracts (PoC) 28,605 36,442 4. Trade payables 65,375 96,487 5. Liabilities to enterprises in which the company has participating interests 267 137 6. Current portion of liabilities from finance lease agreements 10,233 9,080 7. Other current liabilities 101,269 90,205 8. Other current financial liabilities 24,819 22,372 332,350 411,827 II. Provisions 1. Effective income tax obligations 9,462 14,508 2. Other provisions (29) 17,382 18,014 3. Current portion of defined benefit plans (27) 1,536 1,660 28,380 34,182 360,730 446,009 1,185,161 1,337,749 90

Statement of Changes in Equity of the BAUER Group from January 1, 2009 to December 31, 2010

in EUR '000 Other revenue reserves and net earnings available for distribution Currency Hedging Subscribed Capital Revenue translation Reconciling transactions Own Minority capital reserve reserves reserve item, IFRS reserve shares interests Total

As at 73,001 38,404 241,058 -4,955 10,387 0 0 14,742 372,637 01.01.2009

Changes in scope 0 0 -615 0 0 0 0 10,006 9,391 of consolidation

Total profit 0 0 39,018 -2,125 0 -2,340 0 2,434 36,987 Dividend payments 0 0 -17,131 0 0 0 0 0 -17,131 Other changes 0 0 0 0 0 0 0 0 0

As at 73,001 38,404 262,330 -7,080 10,387 -2,340 0 27,182 401,884 31.12.2009

As at 73,001 38,404 262,330 -7,080 10,387 -2,340 0 27,182 401,884 01.01.2010

Changes in scope 0 0 0 0 0 0 0 0 0 of consolidation

Total profit 0 0 35,029 13,447 0 -249 0 4,525 52,752 Dividend payments 0 0 -10,279 0 0 0 0 -459 -10,738 Other changes 0 0 -1,560 0 0 1,528 0 0 -32

As at 73,001 38,404 285,520 6,367 10,387 -1,061 0 31,248 443,866 31.12.2010 91

Notes to the Consolidated Financial Statements of the BAUER Group

ACCOUNTING PRINCIPLES

BAUER AG is a stock corporation (Aktiengesellschaft) under German law. Its registered office is at BAUER-Strasse in Schrobenhausen, and the company is entered in the Register of Companies of Ingolstadt under file reference HRB 101375.

The BAUER Group is a provider of services, machinery and ancillary products in the earth-working and groundwater fields. The Group markets its products and services all over the world. The operations of the Group are divided into three segments: Construction, Equipment and Resources. BAUER Aktiengesellschaft has been listed on the SDAX stock market index since September 2006. Between September 2008 and September 2010 BAUER Aktiengesellschaft was also listed on the MDAX index.

The consolidated financial statements of BAUER AG were prepared applying Section 315a of the German Commercial Code (HGB) in accordance with International Financial Reporting Standards (IFRS). The consolidated financial statements were prepared on the basis of historical cost, limited by the market-value valuation of available-for-sale financial assets and by the fair-value valuation of financial assets and liabilities (including derivative financial instruments) affecting net income. The pre- vious year's figures have been determined according to the same principles. The consolidated financial statements were prepared in euros. Unless otherwise specified, all amounts are quoted in thousands of euros (EUR '000).

The income statement was prepared according to the nature of expenses method. 2010 FINANCIAL STATEMENTS CONSOLIDATED

In the consolidated financial statements, assumptions and estimates must be made which influence the amounts and recognition of assets and liabilities, income and expenses recorded, as well as contingent liabilities. The main areas of application of assumptions and estimates are in specifying the useful lives of fixed assets, determining discounted cash flows within the framework of impairment tests, assessing the realizability of deferred tax assets and the collectability of receivables, estimating the percentage of completion of construction contracts, establishing the fair value of some finan- cial instruments and in creating provisions for legal actions, pensions and other benefit commitments, taxes, warranties and guarantees. The actual values may differ from the estimates made.

1. INTERPRETATIONS AND STANDARDS SUBJECT TO MANDATORY IMPLEMENTATION FOR THE FIRST TIME IN THE 2010 FINANCIAL YEAR Amendment to IAS 1 (Presentation of Financial Statements). Applicable to financial years beginning on or after January 1, 2010. This amendment relates to the classification of the debt components of convertible bonds as short-term or long- term liabilities.

Amendment to IAS 7 (Cash Flow Statements) and amendment to IFRS 6 (Exploration for and Evaluation of Mineral Resources). Applicable to financial years beginning on or after January 1, 2010. The IASB has included a clarification in IAS 7.16 whereby only expenditures leading to the creation of a balance sheet asset can be stated as cash flows from investing activities. In this context, the amendment to IFRS 6 stipulates that the exemption relates only to the recognition and valuation of assets arising from exploration and evaluation, though not to the classification of the expenditures incurred in respect of them in the cash flow statement.

Amendment to IAS 17 (Leases). Applicable to financial years beginning on or after January 1, 2010. Paragraphs 14 and 92 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

15 of IAS 17, which contained detailed stipulations relating to the classification of leases of land and buildings, have been deleted and replaced by the new paragraph 15A. The said paragraph 15A states that the classification of land leases must be no different from that of leases of buildings.

The amendment to IAS 18 (Revenue) now provides general guidance for determining whether an entity is acting as a prin- cipal or an agent. An entity acts as a principal when it is subject to the essential risks and opportunities relating to the sale of goods or the rendering of services. By contrast, an entity acts merely as an agent when it is not subject to the essential risks and opportunities relating to the sale of goods or the rendering of services. No explicit rules had yet been stipulated at the time of initial application.

In the course of publishing IFRS 8, paragraph 80 of IAS 36 (Impairment of Assets) was also amended. This ruling stipulates that goodwill acquired by way of an acquisition should be allocated to a cash-generating unit or to a group of cash-generating units. Each unit or group of units to which goodwill is allocated should represent the lowest level within the entity at which the goodwill is monitored for internal management purposes. Moreover, it must not be larger than an operating segment determined in accordance with IFRS 8. A grouping of individual operating segments to form a report- ing segment as possibly permitted by IFRS 8 is thus not a permissible level at which the goodwill may be tested for im- pairment. This amendment is applicable to financial years beginning on or after January 1, 2010.

Amendment to IAS 38 (Intangible Assets). Applicable to financial years beginning on or after July 1, 2009. This standard stipulates that an intangible asset acquired by way of a business combination is possibly only separable in conjunction with an associated contract, an identifiable asset or a liability (IAS 38.36). Moreover, a group of complementary intangible assets of which the useful economic life is similar may be recognized as a single asset (IAS 38.37). Paragraphs 40 and 41 clarify the measurement methods that are generally to be used as the basis for determining the fair value of intangible assets when an active market for the asset does not exist. The amendments to IAS 38 are prospectively applicable to financial years beginning on or after July 1, 2009. Goodwill and intangible assets arising from earlier business combinations can be recognized in the same way as previously.

The amendment to IAS 39 (Financial Instruments: Recognition and Measurement) regulates the treatment of prepay- ment penalties as embedded derivatives closely connected to the host debt contract. If, in accordance with IAS 39.AG30(g), a close connection can be assumed to exist between the repayment option and the debt contract, a prepayment penalty payable by the debtor now generally entails mandatory separation. Explicitly exempted from the scope of IAS 39 are contracts which meet the preconditions now detailed under IAS 39.2(g). This new ruling is applicable to financial years beginning on or after January 1, 2010, prospectively to all contracts which have not yet expired.

The new version of IFRS 1 (First-time Adoption of International Financial Reporting Standards) published by the IASB on November 27, 2008 incorporates the provisions of the previously applicable standard, and as such differs only in its structuring. The new version of IFRS 1 is to be applied by entities which prepare financial statements in accordance with IFRS for the first time in respect of financial years beginning on or after July 1, 2009. Earlier voluntary adoption is permissi- ble. Furthermore, in July 2009 additional exemptions from the generally mandatory retrospective adoption of all standards and interpretations applicable on the accounting reference date of the first financial statements prepared in accordance with IFRS were introduced. These relate to entities in the oil and gas industry as well as to first-time adopters of IFRS ap- plying the transitional provisions of IFRIC 4.

Amendment to IFRS 2 (Share-based Payment). Applicable to financial years beginning on or after July 1, 2009. This amendment clarifies that in addition to business combinations that come under the scope of IFRS 3 (Business Combinations) NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 93

the establishment of joint ventures or transactions under joint control likewise does not come under the scope of IFRS 2. The IASB published a further amendment to IFRS 2 in June 2009. This amendment states that an entity which receives goods or services in the course of a share-based payment transaction must account for the said goods or services, regard- less of which unit within the Group meets the associated obligation or whether the obligation is met by way of shares or in cash. The term "Group" is also clarified. The amendments are bindingly applicable to financial years beginning on or after January 1, 2010.

The newly revised standards IFRS 3 (Business Combinations) and IAS 27 (Consolidated and Separate Financial Statements) include the following key changes: • Option relating to the recognition of minority interests (IFRS 3) • Revaluation affecting net income of existing shares in respect of successive acquisitions (IFRS 3) • Ancillary acquisition costs are in future to be recognized as expenditure (IFRS 3) • No adjustment of goodwill is now possible in subsequent valuations in respect of potential adjustments of acquisition cost (IFRS 3) • Effects arising from the liquidation of business relationships which already existed prior to the consolidation are not to be included in calculation of the quid pro quo consideration for the consolidation (IFRS 3) • New provisions relating to the recognition and measurement of rights granted to another entity prior to consolidation which are subsequently recovered on a commercial basis in the course of consolidation (IFRS 3) • Changes in investments without loss of control are to be recognized solely as equity transactions (IAS 27) • In the event of loss of control over a subsidiary, the consolidated assets and liabilities are to be taken off the balance

sheet (IAS 27) 2010 FINANCIAL STATEMENTS CONSOLIDATED • Any negative balance between the losses attributable to the minority interests and the minority interest in the subsidiary's equity is attributed to the minority interests (IAS 27) The revised version of IFRS 3 is applicable to the consolidation of acquisitions in reporting periods beginning on or after July 1, 2009. The amendments to IAS 27 are applicable to reporting periods beginning on or after July 1, 2009.

IAS 28 (Investments in Associates) was amended as a consequence of the amendment to IAS 27. With effect from reporting periods beginning on or after July 1, 2009, remaining interests in associated companies are valued at their fair value. Differences from the carrying amount according to the equity method are recognized as gains or losses. Income from disposal of the remaining shares in the associated company and their carrying amounts is likewise recognized as gains or losses.

The amendment to IFRS 5 (Non-Current Assets Held for Sale and Discontinued Operations) is prospectively applica- ble for the first time to financial years beginning on or after January 1, 2010. The new Paragraph 5B clarifies the conditions under which explanation beyond the scope required by IFRS 5 is applicable. This would be the case where: • a standard itself provides for independent explanation; or • for assets and liabilities of a disposal group measured pursuant to other standards, whereby the other standards for measurement of the said assets and liabilities require appropriate explanation which is not otherwise given in the Notes.

Amendment to IFRS 8 (Operating Segments) applicable to financial years beginning on or after January 1, 2010. This amendment clarifies that in segment reporting recognition of (segmental) assets and liabilities is required where such recognition forms part of routine reporting to the chief operating decision-maker of the entity.

IFRIC 9 (Reassessment of Embedded Derivatives) is applicable for the first time to financial years beginning on or after July 1, 2009. IFRIC 9 has been amended such that not only contracts acquired in the course of a business combination 94 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

under the terms of IFRS 3 but also contracts which are acquired in the course of business combinations involving entities or business units under joint control or which are transferred on establishment of a joint venture are to be explicitly ex- empted from the scope of IFRIC 9. Where IFRS 3 (rev. 2008) is applied to an earlier period, the amendments to IFRIC 9 also apply to that earlier period.

IFRIC 12 (Service Concession Arrangements) closes the gap previously existing in the IFRS provisions relating to the recognition of rights and obligations arising from service concessions which an entity acquires from a government or other body to provide public services. The interpretation stipulates only the recognition by the concession operators. The account- ing recognition is based on whether the entity has an unconditional contractual right to receive a payment or whether it has merely acquired a right to charge the users a fee in return for use. The former case gives grounds for recognition of a finan- cial asset, so that it must be recognized according to the "Financial Asset Model". In the latter case, the entity acquires an intangible asset which permits it to operate a public service facility. In this case recognition is based on the "Intangible Asset Model". Where the government or public body guarantees the entity a specific minimum remuneration, but any additional amounts can only be charged if the facility is sufficiently used, a financial asset must be recognized in the amount of the guaranteed payment and an intangible asset in respect of the payments above and beyond that amount made by users. IFRIC 12 is generally applicable for the first time to financial years beginning on or after January 1, 2008. The EU has adopted this interpretation with a differing time of first-time application. Accordingly, IFRIC 12 is applicable at the latest at the beginning of the first financial year beginning after March 29, 2009. The implementation of this interpretation has effects for the BAUER Group primarily with regard to accounting for service concessions according to the Financial Asset Model.

Interpretation IFRIC 15 (Agreements for the Construction of Real Estate) was published on July 3, 2008. This interpre- tation relates to the conditions under which entities engaged in the construction of real estate must implement IAS 11 (Construction Contracts) and IAS 18 (Revenue) and to the point at which revenue from the construction of real estate must be realized. IFRIC 15 is bindingly applicable, retrospectively, to financial years beginning on or after January 1, 2009. Earlier voluntary adoption is permissible.

The amendment to IFRIC 16 (Hedges of a Net Investment in a Foreign Operation) is applicable for the first time to financial years beginning on or after July 1, 2009. Previously, instruments held by the foreign operation itself were excluded from the scope of permissible hedge transactions. The latest amendment lifts this restriction.

IFRIC 17 (Distributions of Non-cash Assets to Owners) is applicable for the first time to financial years beginning on or after July 1, 2009. IFRIC 17 sets out guidelines on how to account for distributions of non-cash assets to the owners of an entity. By the same ruling, changes resulting from IFRIC 17 were also adopted in IFRS 5 (Non-Current Assets Held for Sale and Discontinued Operations) and IAS 10 (Events after the Reporting Period).

IFRIC 18 (Transfers of Assets from Customers) is applicable for the first time to transfers of assets received by the entity on or after July 31, 2009. IFRIC 18 sets out guidelines as to how an entity should account for transfers of assets from cus- tomers.

With the exception of IFRIC 12, no effects on the earnings, financial and net asset position stated in the consolidated finan- cial statements of BAUER Aktiengesellschaft have resulted from implementation of the amendments. NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 95

2. STANDARDS, INTERPRETATIONS AND AMENDMENTS TO STANDARDS NOT YET SUBJECT TO MANDATORY IMPLEMENTATION IN THE 2010 FINANCIAL YEAR The Group has not implemented the following non-mandatory standards, amendments to standards and interpretations ahead of time:

The amendment to IAS 12 (Income Taxes) relates solely to investment properties measured at fair value as financial in- vestments pursuant to IAS 40, but not to intangible assets or other property, plant and equipment. This exemption likewise applies to investment properties recognized for the first time as financial investments in the course of an acquisition, if they are also to be measured at fair value in subsequent valuations. The amended version is bindingly applicable to financial years beginning on or after January 1, 2012. Voluntary earlier implementation is permissible.

In November 2009, the IASB published IAS 24 (Related Party Disclosures). The amendment simplifies the disclosure require- ments imposed on governments as related parties. At the same time, it clarifies the definition of a related party. The amend- ments are applicable to financial years beginning on or after January 1, 2011. Earlier implementation is permissible.

On October 8, 2009, the IASB published the amendment to IAS 32 (Financial Instruments: Presentation, relating to Classification of Rights Issues). Where an entity issues subscription rights, options or warrants in respect of a fixed num- ber of treasury shares in a currency other than its functional currency, such rights were previously required to be recog- nized as financial liabilities. The amendment adds that subscription rights, options or warrants in respect of a fixed number of treasury shares are to be stated against a fixed amount in any currency as equity instruments, provided they are granted on a pro rata basis to all existing shareholders of the same class. The amendments are bindingly applicable to financial 2010 FINANCIAL STATEMENTS CONSOLIDATED years beginning on or after February 1, 2010. Earlier implementation is permissible.

On January 28, 2010, the IASB published the amendment to IFRS 1 (First-time Adoption of IFRS). This enables first- time adopters of IFRS to apply the transitional provisions of IFRS 7 (Financial Instruments). The transitional provisions of IFRS 7 allow first-time adopters of the new disclosure requirements not to make comparative disclosures. The amendment is applicable to financial years beginning on or after July 1, 2010. However, earlier voluntary adoption is permissible.

On October 7, 2010, the IASB published amendments to IFRS 7 (Financial Instruments: Disclosures). The amendments relate to additional disclosure requirements in the event of derecognition of financial assets. The amendments will allow users of financial statements to improve their understanding of transfer transactions of financial assets. Where financial assets have been transferred to another party, resulting in complete derecognition of the assets, the transferring entity is required to make comprehensive new disclosures in respect of rights and obligations possibly retained or acquired in the course of the transaction. As well as describing the rights and obligations, further quantitative disclosures are required. The profit or loss created by the transfer and the effect on profit and loss arising from the valuation of the retained or acquired rights and obligations must also be disclosed. Entities must bindingly apply the amendments to financial years beginning on or after July 1, 2011. In the first year of adoption no comparative disclosures are required.

On November 12, 2009, the IASB published IFRS 9 (Financial Instruments: Classification and Measurement). IFRS 9 replaces the existing categories set out in IAS 39: - Loans and receivables (LaR) - Held-to-maturity investments (HtM) - Available-for-sale financial assets (AfS) - Financial assets held for trading (FAHfT) by the categories: 96 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

- Amortized cost and - Fair value. Whether an instrument can be classified as "amortized cost" depends on the business model of the entity concerned and on the product features of the individual instrument. Instruments which do not conform to the features of the "amortized cost" category are to be measured at fair value, affecting net income. The amendments are applicable to financial years beginning on or after January 1, 2013. Earlier implementation is permissible.

On November 26, 2009, the IASB published amendments to IFRIC 14 (IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction). IFRIC 14 sets out general guidelines for determining the upper limit of the surplus of a pension fund which can be recognized as an asset in accordance with IAS 19. The amendment is applicable for the first time to financial years beginning on or after January 1, 2011.

IFRIC 19 (Extinguishing Financial Liabilities with Equity Instruments) is applicable for the first time to financial years beginning on or after July 1, 2010. IFRIC 19 sets out guidelines for entities which extinguish a financial liability in whole or in part by issuing shares or other equity instruments.

With the exceptions of IFRS 7 and IFRS 9, the effects of which cannot yet be predicted, no effects on the earnings, finan- cial and net asset position will result from implementation of the amendments. NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 97

The following standards, interpretations and amendments to standards and interpretations, as detailed above, have not yet been adopted by the European Union into European law: • IAS 1 (Presentation of Financial Statements) • IAS 7 (Statement of Cash Flows) • IAS 17 (Leases) • IAS 18 (Revenue) • IAS 24 (Related Party Disclosures) • IAS 36 (Impairment of Assets) • IAS 38 (Intangible Assets) • IAS 39 (Financial Instruments: Recognition and Measurement) • IFRS 1 (First-time Adoption of IFRS) • IFRS 2 (Share-based Payment) • IFRS 5 (Non-Current Assets Held for Sale and Discontinued Operations) • IFRS 8 (Operating Segments) • IFRS 9 (Financial Instruments: Classification and Measurement) • IFRIC 14 (The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction) • IFRIC 16 (Hedges of a Net Investment in a Foreign Operation) • IFRIC 19 (Extinguishing Financial Liabilities with Equity Instruments)

1. SCOPE OF CONSOLIDATION

The scope of consolidation includes BAUER Aktiengesellschaft and all major subsidiaries. Subsidiaries are all companies 2010 FINANCIAL STATEMENTS CONSOLIDATED over which the parent has control in terms of financial and corporate policy. This is routinely accompanied by a voting share of over 50 percent. When assessing whether control is exerted, the existence and effect of potential voting rights currently exercisable or convertible are considered. In a small number of cases, companies are fully consolidated into the consolidated financial statements of BAUER AG even though that company holds less than 50 percent of their voting rights. This is the result of state restrictions which stipulate that foreign investors may not hold more than 50 percent of the voting rights in domestic companies. In such cases BAUER AG makes use of agency , whereby more than 50 percent of the voting rights are commercially held in the company concerned, thus allowing for full consolidation. Subsidiaries are included in the consolidated financial statements (fully consolidated) from the point at which control is transferred to the Group. They are de-consolidated at the point when control ends. Companies of which BAUER Aktiengesellschaft is able, directly or indirectly, to exercise a significant influence on the said companies' financial and operating policy decisions (associated companies) are consolidated according to the equity method. This related to six companies in the financial year under review (in the previous year: six companies). The main subgroups and companies included in the consolidated financial statements are listed in the Major Participa- tions section. The disclosures in accordance with Section 313, Subsection 2 HGB are grouped in a separate list of holdings. This will be published as part of the Notes to the financial statements in the electronic version of the official Gazette ("Bundesanzeiger") of the Federal Republic of Germany. Subsidiaries with differing balance sheet dates compile interim financial statements as per the Group balance sheet date. The two associated companies NuBa Equipment Ltd. and Nuna Drilling F.A.L.C. Ltd., both of Canada, prepare their annual 98 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

financial statements to September 30. BAUER Corporate Services Private Ltd., India, compiles its consolidated financial statements to March 31.

The following companies were consolidated for the first time during the financial year: • Resources segment: BAUER Resources Ghana Limited, Accra, Ghan

The newly consolidated company is a newly founded entity.

No changes have occurred to the scope of consolidation in the other segments.

Acquisitions by the BAUER Group: No acquisitions were made in the 2010 financial year.

2. CONSOLIDATION PRINCIPLES The assets and liabilities of the German and foreign companies included in the consolidated financial statements are stated according to the uniform accounting and valuation methods applicable throughout the BAUER Group. Mutual receivables and liabilities as well as expenses and income between consolidated companies are eliminated. Consolidated inventories and fixed assets are adjusted by existing intra-Group balances. Consolidation affecting net in- come is subject to deferral of taxes, with deferred tax assets and liabilities being offset against each other provided the payment period and tax creditor are the same. In respect of subsidiaries consolidated for the first time, the identifiable assets, liabilities and contingent liabilities of the acquired companies were recorded at their applicable fair values at the time of acquisition. Goodwill occurring on initial consolidation is capitalized and subjected to a yearly impairment test; an excess of the net fair value of the acquired net assets over cost is recognized in the income statement immediately at the time of initial consolidation in accordance with IFRS 3. Consolidation according to the equity method is subject to the same principles. If the pro rata loss in an associated company is equal to or greater than the carrying amount of the participating interest, no further losses are recognized, unless a consoli- dated Group company has entered into obligations or made payments on behalf of the associated company. Unless otherwise stated, the share in equity of direct minority interests (non-controlling shares) is determined at the time of acquisition based on the proportion of the assets (excluding goodwill) and liabilities attributable to them, measured at fair value.

3. CURRENCY TRANSLATION Foreign currency transactions are translated in the financial statements of BAUER Aktiengesellschaft and the consolidated subsidiaries at the rates applying on the dates of the transactions. On the balance sheet we state monetary items in foreign currency applying the middle rate at the balance sheet date. Exchange rate gains and losses incurred are recognized in the income statement. The financial statements of the foreign companies belonging to the BAUER Group are translated into euros according to the functional currency concept. Accordingly, assets and liabilities are translated at the rate applying on the balance sheet date and the income statement items at the average rate. The differences arising from currency translation are recognized in the currency translation reserve as part of the shareholders' equity, without affecting net income. NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 99

The rates used for translation are based on the following table:

1 EUR equals Yearly average values Balance sheet date values

2009 2010 2009 2010

Singapore SGD 2.0230 1.7970 2.0118 1.7172 Thailand THB 47.9766 41.8465 47.7704 40.1316 Mexico MXP 18.8839 16.6861 18.6376 16.4480 Chile CLP 770.8597 673.6688 725.4943 621.5312 Argentina ARS 5.2328 5.1801 5.4585 5.2813 Peru PEN 4.1856 3.7336 4.1349 3.7316 Japan JPY 130.4779 115.2189 132.5913 108.5936 United States of America USD 1.3955 1.3213 1.4303 1.3282 South Africa ZAR 11.5160 9.6328 10.5714 8.8512 Great Britain GBP 0.8907 0.8575 0.8932 0.8630 Malaysia MYR 4.9079 4.2457 4.9079 4.0955 Saudi Arabia SAR 5.2307 4.9550 5.3647 4.9800 Lebanon USD 2,098.6933 1,984.5366 2,147.5204 1,993.6282 Egypt EGP 7.7480 7.4680 7.8479 7.7102 Indonesia IDR 14,392.4954 12,006.9617 13,515.8625 11,932.5488 Hungary HUF 281.4997 276.3604 272.6986 279.5330 2010 FINANCIAL STATEMENTS CONSOLIDATED Romania RON 4.2363 4.2178 4.2393 4.2890 United Arab Emirates AED 5.1257 4.8529 5.2535 4.8785 Philippines PHP 66.6220 59.4836 66.0776 58.2283 New Zealand NZD 2.2051 1.8348 1.9873 1.7292 Taiwan TWD 45.9743 41.6194 46.1570 38.9163 Hong Kong HKD 10.8169 10.2664 11.0914 10.3382 China CNY 9.5279 8.9329 9.7660 8.7697 Switzerland CHF 1.5089 1.3693 1.4886 1.2442 Australia AUD 1.7629 1.4383 1.6010 1.3121 Canada CAD 1.5792 1.3684 1.5031 1.3277 Russia RUB 44.2682 40.2052 43.3528 40.5280 India INR 67.4647 60.4041 66.8570 59.6528 Bulgaria BGL 1.9558 1.9560 1.9559 1.9557 Sweden SEK 10.5939 9.4936 10.2628 8.9814 Poland PLN 4.3516 3.9922 4.1320 3.9675 Panama PAB 1.3955 1.3213 1.4303 1.3282 Qatar QAR 5.0790 4.8090 5.2088 4.8346 Turkey TRY 2.1674 1.9975 2.1633 2.0625 Vietnam VND 24,933.5990 25,347.7507 26,422.4385 25,895.9154 Jordan JOD 0.9861 0.9356 1.0123 0.9400 Oman OMR 0.5371 0.5087 0.5506 0.5114 Ghana GHS --- 1.8977 --- 1.9740 100 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

4. ACCOUNTING AND VALUATION METHODS Intangible assets Intangible assets are capitalized at cost and amortized according to the straight-line method over the projected useful life of 3 to 10 years. Assets which have an indefinite useful life, such as goodwill, are not subjected to scheduled amortization but are impair- ment-tested each year, or when relevant indications arise. The goodwill is the amount by which the acquisition cost of the acquisition exceeds the fair value of the Group's shares in the net assets of the acquired entity at the date of acquisition. Goodwill created by acquisition is recognized under "Intangible assets". Goodwill resulting from the acquisition of an asso- ciated company is included in the carrying amount of investments in associated companies and consequently is not im- pairment-tested separately, but within the overall carrying amount. The recognized goodwill is subjected to an annual value retention test and valued at its original acquisition cost less cumulative impairment. Value recovery adjustments are not permitted. Gains and losses from the disposal of an entity include the carrying amount of the goodwill assigned to the entity being sold. Assets which are subject to scheduled amortization are impairment-tested if relevant events or changes in circumstances indicate that the carrying amount may no longer be attainable. Impairment in the amount of the carrying amount exceeding the attainable amount is recognized. The attainable amount is the higher amount of the applicable fair value of the asset less selling costs and the value in use. For the impairment test, assets are grouped at the lowest level for which cash flows can be separately identified (cash-generating units). With the exception of goodwill, a test is performed on each balance sheet date in respect of non-cash assets for which in the past an impairment was recognized as to whether a value recovery adjustment is required. Research and development costs are generally charged as expenditure in the financial year in which they occurred, in accordance with IAS 38. Exceptions to this are certain development costs which are capitalized where it is probable that a future economic benefit will be drawn from the development project and the costs incurred can be measured reliably. In addition, the following criteria in accordance with IAS 38.57 must be met: • Technical feasibility of completion of the intangible asset so that it will be available for use or sale • Intention to complete the intangible asset and to use or sell it • Ability to use or sell the intangible asset • How the intangible asset will generate probable future economic benefits • The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset • The ability to measure reliably the expenditure attributable to the intangible asset during its development.

The cost of manufacture includes all costs directly attributable to the development process as well as appropriate por- tions of development-related overheads. The assets in development are subjected to an annual impairment test and valued at their original cost less cumulative depreciation. Amortization is undertaken according to the straight-line method as from start of production over the intended term of the developed models. The projected useful life is between 3 and 6 years. Impairment losses on intangible assets are recognized to the higher of the value in use or net realizable value. If the precon- ditions for an impairment no longer exist, reversals of impairment – except for goodwill – are undertaken. NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 101

Property, plant and equipment Property, plant and equipment is valued at cost, less scheduled straight-line depreciation based on the pro rata temporis method, according to IAS 16. The following table provides an overview of the useful lives:

Investment Useful life

Buildings and other structures 3 to 60 years Technical equipment and machinery 3 to 21 years Other equipment, factory and office equipment 2 to 21 years

Impairment losses on property, plant and equipment are recognized in accordance with IAS 36 where the value in use or fair value less cost to sell of the asset concerned has fallen below the carrying amount. If the reasons for an impairment recognized in previous years no longer exist, a corresponding reversal of impairment is applied. Both impairment losses and scheduled depreciation are recognized under "Depreciation of fixed assets". The level of im- pairment losses is explained in accordance with IAS 36 under "Non-current assets".

Leasing The BAUER Group acts as both a lessee and a lessor. Leasing relationships are classified according to IAS 17 based on the distribution of opportunity and risk between the lessor and lessee. Leasing relationships in which most of the opportunity and risk linked to ownership of the leased item remains with the lessor are classified as operating leases. Where the lessee has most of the opportunity and risk, the agreement is classified as a finance lease. 2010 FINANCIAL STATEMENTS CONSOLIDATED a) Accounting for lessee transactions Payments made in connection with an operating lease (net after taking into account incentive payments by the lessor) are recognized in the income statement by straight-line depreciation over the term of the lease. Assets from finance leases are capitalized at the start of the lease term at the lower of the fair value of the leased item and the present value of the minimum lease payments. A leasing liability is recognized under "Current and non-current liabili- ties". Each lease instalment is split into an interest and a repayment portion, so that the leasing liability is subject to a con- sistent interest rate. The interest portion of the lease instalment is recognized as affecting expenditure in the income statement. The property, plant and equipment asset held under a finance lease is written down over the shorter of the economic life of the asset or the lease term. b) Accounting for lessor transactions A lease is an agreement whereby the lessor assigns to the lessee the right to use an asset for a specific period of time against a payment or series of payments. Assets leased by the customer in the form of operating leases are assigned on the balance sheet according to their nature. Income from leases is recognized by the straight-line method over the term of the agreement. In the BAUER Group, only operating leases are entered into as the lessor.

Government grants In accordance with IAS 20, government grants reduce the acquisition or manufacturing cost of the assets in respect of which the grant is made. Government subsidies are recognized as liabilities and entered as income over the respective useful life. 102 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

Business combinations Acquisitions of subsidiaries are accounted for in accordance with IFRS 3 based on the acquisition method. The cost of the acquisition corresponds to the fair value of the assets contributed, the equity instruments issued and the liabilities created and/or transferred at the transaction date. Assets, liabilities and contingent liabilities identifiable in the course of a business combination are measured on initial consolidation at their fair values at the acquisition date. The amount by which the acquisition cost exceeds the Group's share of the net assets measured at their fair value is stated as goodwill. If the acquisition cost is less than the net assets of the acquired subsidiary measured at their fair value, the difference is recognized directly in the income statement. Transaction costs directly linked to a business combination are recognized in the income statement. In the event of successive acquisitions, the differences between the carrying amount and the applicable fair value of the shares previously held are recognized as affecting net income at the time of acquisition. Exist- ing contracts with the acquired entity at the time of acquisition, except those under the terms of IAS 17 and IFRIC 4, are analyzed and reclassified where appropriate.

Borrowing costs Borrowing costs linked directly to the acquisition, construction or production of qualifying assets in accordance with IAS 23 are included in the cost of the asset in question for the period until start of use of the asset. The underlying finance cost rates in the past financial year were between 4.53 percent and 6.80 percent (previous year: 4.87 percent and 6.00 per- cent). Testing as to whether an asset is a qualifying asset is carried out according to internally stipulated materiality limits for projects and installations. If the said materiality limits are exceeded, borrowing costs for qualified assets are capitalized. Other financing costs are recognized as ongoing expenditure under "Financial expenses".

Investment property Land and buildings maintained in order to generate rental income are accounted for at amortized cost in accordance with IAS 40, with the useful lives applied for depreciation (straight-line according to the pro rata temporis method) correspon- ding to those of the property, plant and equipment used by the company itself. Valuations are carried out not by external valuers, but by extrapolation from current market prices of comparable properties.

Investments accounted for using the equity method According to IAS 28, an associated company is any entity over which the investor has significant influence, though not control. This routinely means voting shares of between 20 and 50 percent. Shares in associated companies are valued at-equity and recognized initially at cost. The Group's shares in associated companies include the goodwill created by the acquisition (less cumulative impairment). The Group's share in the profits and losses of associated companies is reported in the income statement as from the time of acquisition. The share in changes in reserves is recorded in the Group reserves. The cumulative changes after acquisition are set off against the carrying amount of the investment. If the Group's share in the losses of an associated company is equal to or more than the Group's shareholding in the said associated company, including other unsecured claims, the Group recognizes no additional losses, unless it has entered into obligations or made payments on behalf of the associated company. Non-realized gains from transactions between Group companies and associated companies are eliminated according to the Group's share in the associated company. Non-realized losses are likewise eliminated, unless the transaction implies an impairment of the transferred asset.

Financial instruments a) Primary financial instruments In the BAUER Group, primary financial instruments are assigned as financial assets to the following categories: • Loans and Receivables (LaR) • Available-for-Sale (AfS) NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 103

The "Loans and Receivables" category includes particularly trade receivables, current and non-current assets as well as current and non-current financial assets. The "Available-for-Sale" category includes marketable securities as well as equity portions which are not consolidated or not recognized by the equity method.

Primary financial instruments as financial liabilities are assigned to the following category: • Financial Liabilities Measured at Amortized Cost (FLAC) or Other Financial Liabilities

The "Financial Liabilities Measured at Amortized Cost" category includes liabilities to banks, trade payables as well as other current and non-current liabilities and current and non-current financial liabilities.

Receivables and liabilities in these categories are initially recognized at the applicable fair value, including transaction costs, and subsequently measured at amortized cost, applying the effective interest rate method. The amortized cost of a finan- cial asset or liability is calculated, applying the effective interest rate method, from the historical cost less the repayments made, plus or less the cumulative amortization of any difference between the original amount and the amount repayable at the final due date, and also less depreciation and impairment or plus appreciation and value recovery adjustment.

In the case of current receivables and liabilities, the amortized cost always corresponds to the nominal amount, or the amount repayable. Cash and cash equivalents comprise credit balances with banks as well as petty cash stocks, and are valued at amortized cost.

In the case of a financial asset or liability which is not recognized in the income statement at fair value, initial valuation in- 2010 FINANCIAL STATEMENTS CONSOLIDATED cludes transaction costs directly attributable to acquisition of the financial asset or incurring of the financial liability. In the case of financial assets or liabilities recognized in the income statement at fair value, the initial fair-value valuation excludes the transaction costs. Financial liabilities are derecognized when they have been paid or the obligation has been extin- guished. Items are initially recorded on the performance date. If there are doubts as to the collectability of receivables, they are valued at amortized cost less appropriate single valuation allowances or a flat-rate allowance. Impairment of trade re- ceivables is recognized when there are objective signs (such as disputed follow-up orders, missed payments or insolven- cies) indicating that the amounts due will not be collectable in full. The impairment is entered in a value adjustment account and recognized in the income statement. The fair value option provided by IAS 39 was not exercised. b) Derivative financial instruments A derivative is a financial instrument or other contract: • which varies in value based on changes in a specific interest rate, price of a financial instrument, commodity price, ex- change rate, price or interest rate index, credit rating or credit index, or some similar variable, provided in the case of a non-financial variable the variable is not specific to one party to the contract; • which requires no payment in return for acquisition, or one which, compared to other forms of contract expected to react similarly to changes in market conditions, is lower; • or which is settled at a later date.

In the BAUER Group, free-standing derivative financial instruments are assigned as financial assets to the following category: • Financial Assets Held for Trading (FAHfT) Free-standing derivative financial instruments as financial liabilities are assigned to the following category: • Financial Liabilities Held for Trading (FLHfT) 104 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

The free-standing derivative financial instruments of the "Financial Assets Held for Trading“ and "Financial Liabilities Held for Trading" categories include fair values of interest rate swaps, foreign exchange options and foreign exchange forward contracts not included in hedge accounting or not meeting the hedge accounting conditions.

In the BAUER Group, derivative financial instruments (interest rate swaps, foreign exchange options and foreign exchange forward contracts) are entered into solely to hedge against interest rate and currency risks. No deals are made without an underlying transaction.

In the case of derivatives included in hedge accounting, when hedging expected future transactions (cash flow hedges) the effective portion of the gain or loss from a hedging instrument is initially recognized in the shareholders' equity, taking into account deferred taxes, and is only recognized in the income statement when the underlying hedged transaction is real- ized. The ineffective portion of the hedge transaction is recognized in the income statement immediately. The derivative financial instruments are stated at their fair values as assets or liabilities. Changes in value of derivatives not forming part of a cash flow hedge are stated under other operating income or expenses in the case of foreign exchange forward contracts or options or, in the case of interest rate swaps, are recognized in the income statement under financial expenses or in- come. The fair values of the foreign exchange forward contracts are defined on the basis of current reference prices, taking into account forward premiums and discounts. The fair values of the interest rate swaps are determined on the basis of discounted future payment flows, applying the market interest rates applicable to the respective residual terms of the derivatives. Items are initially recorded on the trading date. Hedge accounting was applied in financial 2010. The fair value option provided by IAS 39 was not exercised.

Inventories Inventories of finished goods and work in progress and merchandise, as well as raw materials and supplies, are measured at acquisition cost or cost of manufacture or at the lower net realizable value on the balance sheet date, in accordance with IAS 2. The net realizable value is the estimated selling price in the ordinary course of business less the estimated costs through to completion and the estimated necessary selling costs.

Where the machinery and accessories classified as finished goods and merchandise, and primarily held for sale, are hired out for a short period as a secondary sales promotion measure, the following factors are considered in determining their net realizable values: • Hire period • Useful life of the machines • Damage and inoperability

Where the net realizable value of previously written-down inventories has increased, corresponding value recovery adjust- ments are made. The cost of manufacture includes all direct costs of the manufacturing process. The level of impairment losses on inventories is explained in accordance with IAS 2 under "Inventories".

Construction contracts Construction contracts are accounted for by the percentage of completion method in accordance with IAS 11. The appli- cable percentage of completion is determined according to the costs incurred (cost-to-cost method). Where the cumulative return (contract costs and pro rata result) exceeds the payments on account in individual cases, the construction contracts are recognized as assets under "Receivables from construction contracts" (PoC). If a negative balance remains after de- duction of the payments on account, it is recognized as a liability under "Liabilities from construction contracts" (PoC). Expected losses on a contract are accounted for in full at the time they are identified, by adjustments to the valuation of any NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 105

existing receivables or by the creation of a provision. Construction contracts undertaken in joint ventures are valued according to the percentage of completion method. Receivables from joint ventures also include the pro rata result from the contract. Expected losses are covered by write-downs or liabilities as appropriate, and are taken into account in the contract result.

Service concession arrangements Service concession arrangements entailing an unconditional contractual right to receive a payment are recognized sepa- rately under "Receivables from concession arrangements". The short-term portions of the receivables from concession arrangements are stated under "Other current financial assets". The receivables are allocated to the "Loans and Receiv- ables" category and recognized at the present value of the remuneration payable. The annual interest due according to the effective interest rate method is recorded in the financial income.

Cash and cash equivalents Cash and cash equivalents comprise cash and sight deposits with an original term of no more than three months.

Deferred taxes In accordance with IAS 12, deferred taxes are taken into account in respect of variations between the valuations of assets and liabilities according to IFRS and their corresponding tax bases in the amount of the projected future tax charge or re- lief. In addition, deferred tax assets are recognized for future advantages arising from tax losses carried forward, provided it is probable that they will be realized. Deferred taxes arising from temporary differences in connection with investments in subsidiaries and associated compa- nies are recognized, unless the date of reversal of the temporary differences can be determined by the Group and it is likely 2010 FINANCIAL STATEMENTS CONSOLIDATED that the temporary differences will not be reversed again in the foreseeable future because of this effect. According to IAS 12.74, deferred tax assets and liabilities are to be offset if a legally enforceable right to set off current tax assets against current tax liabilities exists. Offsetting should also be carried out if the deferred tax assets and liabilities relate to income taxes levied by the same tax authority in respect of: • either the same taxable entity or • different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

The tax expenditure for the period comprises current and deferred taxes. Taxes are reported in the income statement, unless they relate to items recognized directly in the shareholders' equity or in the other result. In this case the taxes are likewise recognized in the shareholders' equity or in the other result.

In Germany, deferred taxes are stated on the basis of corporation tax, the "solidarity surcharge" and trade tax, at a Group- wide rate of 28.08 percent (previous year: 29.00•percent). Outside Germany, tax rates of between 0.00 percent and 41.00 percent (previous year: 10.00 percent and 42.30 percent) are applied.

Defined benefit plans Provisions for defined benefit plans are calculated according to the Projected Unit Credit method stipulated in IAS 19. In this method, not only the retirement benefits and vested rights known on the balance sheet date are taken into account, but also future expected increases in salaries and retirement benefits. Actuarial gains and losses are recognized as affect- ing net income over the average remaining service life of the employee where they exceed 10•percent of the higher of the defined benefit obligation or any plan assets. The current service costs are recognized in the staff costs, and the interest expenses of the allocation to provisions in the financial expenses. 106 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

Other provisions The other provisions are created in accordance with IAS 37 where a present obligation arises from a past event, a relevant claim is more likely than unlikely, and the amount of the claim can be reliably estimated. The provisions are stated at their performance amount, and are not netted against profit contributions. Long-term provisions are recognized at present value. Provisions are created only for legal or constructive obligations to third parties.

Income and expenses Sales revenues and other incomes are realized in accordance with IAS 18 on performance of the supply or service or on transfer of risk to the customer, as appropriate. Dividend income is recognized at the date on which the right to receipt of payment is created. Dividends received are recognized as income from operating investments under "Other operating income". In respect of longer-term customer- specific construction contracts the sales are recognized according to the progress of work based on the percentage of completion method. Income from service contracts is recognized according to the degree of completion. Operating expenses are recognized as affecting net income when the supply or service is claimed or at the time they are caused, as appropriate. Interest income and expenses are recognized when incurred. NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 107

NOTES TO THE INCOME STATEMENT

5. SALES REVENUES The sales revenues generated include revenues arising from application of the percentage of completion method in the amount of EUR 607,781 thousand (previous year: 535,927 thousand). Furthermore, sales revenues were also generated from the sale and renting of equipment and accessories. With regard to the presentation and breakdown of sales revenues by operating segment and region, please refer to the notes on segment reporting (see item 34).

The sales revenues include a net value adjustment of EUR -21,381 thousand (previous year: -5,619 thousand). The net value adjustment is attributable to the Construction segment, where final invoices, for example, may include supplementary items which have not yet been finally negotiated with the customer and ordered. These may prove uncertain. Value adjust- ments (reductions for impairment) are made in respect of uncertain receivables and recorded under "Sales revenues". If the uncertain receivable is realized, the reduction for impairment is reversed. The reversal is likewise recorded under "Sales revenues". The net balance of the application and reversal of reductions for impairment in respect of uncertain receivables produces the aforementioned net value adjustment.

6. OTHER CAPITALIZED GOODS AND SERVICES FOR OWN ACCOUNT in EUR '000 2009 2010

Income from other capitalized goods and services for own account 71,128 30,349

The decrease in other capitalized goods and services for own account by EUR 40,779 thousand results primarily from the reduced investing activity with regard to equipment produced in-house. 2010 FINANCIAL STATEMENTS CONSOLIDATED

7. OTHER INCOME in EUR '000 2009 2010

Income from disposal of property, plant and equipment 4,843 6,486 Realized and unrealized foreign currency gains 12,688 18,711 Income from insurance refunds 1,053 1,267 Income from the reversal of liability provisions 2,290 7,445 Income from participations 341 0 Income from lucky buys 42 0 Other income from rentals 2,565 474 Income from changes in fair values of foreign exchange forward contracts 3 147 Other operating income 13,807 22,827 Total 37,632 57,357

The income from other capitalized goods and services for own account stated in the previous year under "Other income" has for the first time been included as a separate item in the income statement, in accordance with IAS 1.97. The previous year's "Other income" figure has been adjusted accordingly. For greater clarity, the "Income from derecognition of liabilities" item has been renamed.

The realized and unrealized foreign currency gains stated under "Other income" totalling EUR 18,711 thousand (previ- ous year: 12,688 thousand) arose in connection with the global currency hedging strategy and the underlying cur- rency postings. In this context, the income is countered by realized and unrealized foreign currency losses totalling EUR 11,649 thousand (previous year: 11,255 thousand), stated under "Other operating expenses". Additionally, the 108 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

other operating income mainly comprises income from benefits in money's worth, income from the reversal of provisions, other reimbursements of expenditure as well as other income spread across the consolidated com- panies.

8. COST OF MATERIALS

in EUR '000 2009 2010

Expenses for raw materials and supplies and purchased goods 442,117 435,632 Expenses for purchased services 199,891 191,320 Total 642,008 626,952

9. STAFF COSTS The expenses for retirement benefits include the expenditure on benefits as well as the allocations to provisions for defined benefit plans excluding the interest portion, which is stated under "Interest and similar expenses".

in EUR '000 2009 2010

Wages and salaries 218,488 235,765 Social security contributions 39,802 41,474 Expenses for retirement benefits 4,685 5,267 Total 262,975 282,506

The employer's pension contributions in the financial year totalled EUR 17,509 thousand (previous year: 16,573 thou- sand). The wages and salaries include severance payments in the amount of EUR 480 thousand (previous year: 643 thousand).

10. DEPRECIATION OF FIXED ASSETS Scheduled depreciation of fixed assets in the financial year totalled EUR 64,914 thousand (previous year: 58,578 thou- sand). Of that total, EUR 5,494 thousand (previous year: 6,279 thousand) related to intangible assets and EUR 59,420 thousand (previous year: 52,299 thousand) to property, plant and equipment. The impairment losses on fixed assets are explained under item 17.2, Property, plant and equipment and investment property.

11. WRITE-DOWNS OF INVENTORIES DUE TO USE Write-downs of inventories due to use in the financial year totalled EUR 12,248 thousand (previous year: 14,427 thou- sand). This related to write-downs of used machinery temporarily hired out to customers as sales promotion measures. Write-downs of used machinery disposed of in the 2010 financial year are included in these figures. The impairment losses totalling EUR 2,554 thousand stated under this item in the previous year have been reassigned to "Changes in inventories". They related to the machinery inventories which were not hired out.

In the previous year this item was headed "Depreciation of current assets". In order to provide greater clarity, and to dif- ferentiate depreciation of fixed assets, from this financial year on the write-downs due to use of our used machinery hired out during the financial year are stated as a separate income statement item, with separate explanatory notes. The previous year figures have been adjusted. NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 109

12. OTHER OPERATING EXPENSES

in EUR '000 2009 2010

Losses from disposal of property, plant and equipment 725 3,090 Operating expenses 53,285 56,419 Administrative expenses 25,287 22,610 Distribution costs 36,952 37,696 Other employee-related expenses 12,009 13,788 Realized and unrealized foreign currency losses 11,255 11,649 Additional other operating expenses 24,177 35,373 Total 163,690 180,625

The additional other operating expenses mainly comprise allocations to provisions affecting net income, other tax ex- penses, losses from foreign exchange forward contracts as well as additional other operating expenses spread across the consolidated companies. The other employee-related expenses include education and training costs, grants and gifts, travel and relocation expenses, and other project-specific personnel costs.

FINANCIAL RESULT

13. FINANCIAL INCOME 2010 FINANCIAL STATEMENTS CONSOLIDATED The financial income is broken down as follows: in EUR '000 2009 2010

Other interest and similar income 2,319 4,044 Income from changes in fair values of interest rate swaps 10 27 Total 2,329 4,071

14. FINANCIAL EXPENSES The financial expenses are broken down as follows: in EUR '000 2009 2010

Interest and similar expenses 27,156 32,426 Losses from changes in fair values of interest rate swaps 828 1,128 Interest portions of allocations to provisions for defined benefit plans and similar obligations 2,746 2,846 Total 30,730 36,400

The interest from finance leases included under "Interest and similar expenses" in the financial year totalled EUR 1,460 thousand (previous year: 1,755 thousand). The financial result includes interest income from financial assets in an amount of EUR 4,042 thousand (previous year: 2,316 thousand) and interest expenses from financial liabilities in an amount of EUR 30,946 thousand (previous year: 25,403 thousand) which were not measured at fair value affecting profit and loss. The losses from changes in fair values of interest rate swaps stated in the previous year under "Interest and similar expenses" are stated as a separate line item as from financial 2010. 110 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

15. INCOME TAX EXPENSE The income tax expense is broken down as follows:

in EUR '000 2009 2010

Actual taxes 18,110 19,834 Deferred taxes -635 -2,161 Total 17,475 17,673

The theoretical tax rate is 28.08 percent (previous year: 29.00 percent). The adjustment was made following the change to the rate of trade tax applicable within the Group.

Reconciliation from expected to actual income tax expenditure The expected tax expenditure is below (previous year: below) the recorded tax expenditure. The reasons for the difference between the expected and recorded tax expenditure are as follows:

in EUR '000 2009 2010

Profit before income tax 59,503 57,462 Theoretical tax expenditure 28.08 percent (previous year: 29.00 percent) 17,256 16,135 Differences in tax rate -2,889 -2,547 Taxation effects of non-deductible expenses and tax-free income 3,198 2,805 Non-tax-deductible elimination of the negative excess in a business combination -12 0 At-equity valuation of associated companies -1,027 -403 Out-of-period tax payments/refunds for previous years 262 1,084 Value adjustments in respect of deferred tax assets on losses carried forward 857 667 Other -170 -68 Income tax expense 17,475 17,673

Internal disbursements result in taxation effects after December 31, 2010 totalling EUR 31 thousand (previous year: 241 thousand).

16. EARNINGS PER SHARE The earnings per share are calculated by dividing the profit attributable to the shareholders of BAUER Aktiengesellschaft by the weighted average number of ordinary shares outstanding.

The earnings per share amount to the following values:

2009 2010

Profit attributable to the shareholders of BAUER Aktiengesellschaft, in EUR '000 39,018 35,029 Number of shares from 01.01. to 31.12. 17,131,000 17,131,000 Weighted average number of shares in circulation in financial year (basic) 17,131,000 17,131,000 Weighted average number of shares in circulation in financial year (diluted) 17,131,000 17,131,000 Basic earnings per share in EUR 2.28 2.04 Diluted earnings per share in EUR 2.28 2.04 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 111

NOTES TO THE BALANCE SHEET

The breakdown of the fixed asset items summarized on the balance sheet and their development is presented in the fixed asset movement schedule on the following pages.

NON-CURRENT ASSETS

17. FIXED ASSETS

17.1 INTANGIBLE ASSETS in EUR '000 Internally generated intangible assets Licences, software and similar rights Capitalized Capitalized devel- Cost of purchase/cost of manufacturing and values Goodwill software costs opment costs Total

01.01.2009 13,247 1,387 978 26,981 42,593 Change in scope of consolidation 514 0 0 0 514 Additions 6,249 223 71 3,552 10,095 Disposals 840 0 0 12,582 13,422 Transfers -254 0 0 0 -254 Currency adjustment -10 0 0 0 -10 31.12.2009 18,906 1,610 1,049 17,951 39,516 2010 FINANCIAL STATEMENTS CONSOLIDATED in EUR '000 Internally generated intangible assets Licences, software and similar rights Capitalized Capitalized devel- Cost of purchase/cost of manufacturing and values Goodwill software costs opment costs Total

01.01.2010 18,906 1,610 1,049 17,951 39,516 Change in scope of consolidation 0 0 0 0 0 Additions 1,964 0 40 4,525 6,529 Disposals 1,004 0 0 0 1,004 Transfers 449 0 0 0 449 Currency adjustment 283 0 0 0 283 31.12.2010 20,598 1,610 1,089 22,476 45,773

in EUR '000 Internally generated intangible assets Licences, software and similar rights Capitalized Capitalized devel- Accumulated amortization and values Goodwill software costs opment costs Total

01.01.2009 5,352 0 335 19,091 24,778 Change in scope of consolidation 18 0 0 0 18 Additions 2,956 0 147 3,176 6,279 Disposals 809 0 0 12,582 13,391 Transfers 0 0 0 0 0 Currency adjustment -7 0 0 0 -7 31.12.2009 7,510 0 482 9,685 17,677 Carrying amount 31.12.2009 11,396 1,610 567 8,266 21,839 112 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

in EUR '000 Internally generated intangible assets Licences, software and similar rights Capitalized Capitalized devel- Accumulated amortization and values Goodwill software costs opment costs Total

01.01.2010 7,510 0 482 9,685 17,677 Change in scope of consolidation 0 0 0 0 0 Additions 3,496 0 153 1,845 5,494 Disposals 779 0 0 0 779 Transfers 43 0 0 1 44 Currency adjustment 76 0 0 0 76 31.12.2010 10,346 0 635 11,531 22,512 Carrying amount 31.12.2010 10,252 1,610 454 10,945 23,261

Of the total research and development costs and patent costs incurred in 2010, EUR 4,737 thousand (previous year: 3,782 thousand) met the IFRS capitalization criteria. The following amounts were recognized in net income:

in EUR '000 2009 2010

Research costs and uncapitalized development costs 14,588 13,741 Amortization of development costs and patents 3,363 2,345 Research and development costs recognized in net income 17,951 16,086

Goodwill is allocated to the Exploration and Mining Services, Environment and Materials divisions within the Resources segment as relevant cash-generating units (CGUs) in the course of annual impairment testing in line with IFRS 3 / IAS 36. Goodwill assigned to the CGU Materials is EUR 223 thousand (previous year: 223 thousand), to the CGU Exploration and Mining Services EUR 834 thousand (previous year: 834 thousand, and to the CGU Environment EUR 553 thousand (previ- ous year: 553 thousand).

The values applicable to this unit at the balance sheet date correspond to the values in use resulting from the discounted future cash flows. They are determined on the basis of current planning calculations approved by the management over a five-year period. For the period of perpetual annuity the cash flows are updated with a growth rate of 1 percent (previous year: 1 percent). The discount rate for the future cash flows corresponds to the weighted average cost of capital rate (WACC). The pre-tax discount rate for the Exploration and Mining Services, Environment and Materials divisions is 10.0 percent (pre- vious year: 11.2 percent). In the previous year after-tax discount rates were reported.

A comparison of the values in use of the CGUs with the corresponding carrying amounts, including goodwill, resulted in no need for a write-down.

If the WACC had been one percentage point higher on the valuation date, or if no growth had been assumed for the period of perpetual annuity, no impairment expenditure would have been incurred either. NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 113

17.2 PROPERTY, PLANT AND EQUIPMENT AND INVESTMENT PROPERTY in EUR '000 Payments on Technical Other equipment, account and Cost of purchase/ Land Investment equipment and factory and office assets in course cost of manufacturing and buildings property machinery equipment of construction Total

01.01.2009 189,557 2,575 303,292 52,835 36,536 584,795 Change in scope of consolidation 0 0 19,191 2,096 0 21,287 Additions 28,681 41 86,572 10,239 11,262 136,795 Disposals 1,040 0 29,134 6,529 211 36,914 Transfers 27,629 597 8,398 -816 -35,554 254 Currency adjustment -136 -1 -1,854 -96 -89 -2,176 31.12.2009 244,691 3,212 386,465 57,729 11,944 704,041

in EUR '000 Payments on Technical Other equipment, account and Cost of purchase/ Land Investment equipment and factory and office assets in course cost of manufacturing and buildings property machinery equipment of construction Total

01.01.2010 244,691 3,212 386,465 57,729 11,944 704,041 Change in scope of consolidation 0 0 0 0 0 0 Additions 9,095 0 61,863 9,972 9,809 90,739 2010 FINANCIAL STATEMENTS CONSOLIDATED Disposals 159 25 70,040 8,350 4,090 82,664 Transfers 9,772 0 756 329 -11,306 -449 Currency adjustment 2,884 25 20,808 1,554 821 26,092 31.12.2010 266,283 3,212 399,852 61,234 7,178 737,759

in EUR '000 Payments on Technical Other equipment, account and Land Investment equipment and factory and office assets in course Accumulated depreciation and buildings property machinery equipment of construction Total

01.01.2009 52,110 948 169,910 27,181 10 250,159 Change in scope of consolidation 0 0 1,980 630 0 2,610 Additions 7,160 72 37,535 7,532 0 52,299 Disposals 917 0 14,623 5,463 0 21,003 Transfers 306 -4 -33 -259 -10 0 Currency adjustment 0 0 107 -8 0 99 31.12.2009 58,659 1,016 194,876 29,613 0 284,164 Carrying amount 31.12.2009 186,032 2,196 191,589 28,116 11,944 419,877 of which finance lease, carrying amount 31.12.2009 4,267 0 24,575 2,198 0 31,040 114 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

in EUR '000 Payments on Technical Other equipment, account and Land Investment equipment and factory and office assets in course Accumulated depreciation and buildings property machinery equipment of construction Total

01.01.2010 58,659 1,016 194,876 29,613 0 284,164 Change in scope of consolidation 0 0 0 0 0 0 Additions 8,113 73 42,814 8,420 0 59,420 Disposals 189 25 54,373 7,144 0 61,731 Transfers -206 0 135 27 0 -44 Currency adjustment 435 12 12,824 942 0 14,213 31.12.2010 66,812 1,076 196,276 31,858 0 296,022 Carrying amount 31.12.2010 199,471 2,136 203,576 29,376 7,178 441,737 of which finance lease, carrying amount 31.12.2010 4,099 0 24,059 1,529 0 29,687

In respect of buildings and equipment leased by way of finance lease agreements purchase options exist, which will be ex- ercised. The interest rates applied to the leases vary, according to the market and date of signing, between 2.75 percent and 7.89 percent (previous year: 2.45 percent and 8.67 percent). The future lease payments due at their present values are shown in the following table:

in EUR '000 Remaining term 2009 Remaining term 2010

under 1 year 1 to 5 years over 5 years Total under 1 year 1 to 5 years over 5 years Total

Minimum lease payments 11,778 19,083 2,331 33,192 10,400 18,789 1,997 31,186 Interest portions 1,545 2,331 285 4,161 1,320 1,894 135 3,349 Present value 10,233 16,752 2,046 29,031 9,080 16,895 1,862 27,837

The investment properties have a fair value of EUR 2,050 thousand (previous year: 2,569 thousand) and in 2010 were all rented out. This primarily relates to a hotel owned by SCHACHTBAU NORDHAUSEN GmbH which is rented out to third parties. Valua- tions are carried out not by external valuers, but by extrapolation from current market prices of comparable properties.

In the period under review rental income in the amount of EUR 74 thousand (previous year: 95 thousand) was generated, to which direct operating expenses totalling EUR 46 thousand (previous year: 56 thousand) are attributable. Property, plant and equipment with a carrying amount of EUR 143,660 thousand (previous year: 135,878 thousand) is sub- ject to charges in the form of land charges and assignment. In addition, the usual commercial restrictions on right of disposal exist in respect of rented assets, attributable to the Group in accordance with IAS 17 (finance leases), totalling EUR 29,687 thousand (previous year: 31,040 thousand). In the 2010 financial year SCHACHTBAU NORDHAUSEN GmbH was awarded investment subsidies in an amount of EUR 0 thousand (previous year: 621 thousand) and Olbersdorfer Guß GmbH was awarded investment subsidies for the extension of its production facilities in an amount of EUR 95 thousand (previous year: 387 thousand). All conditions necessary for allocation of the investment subsidies were met on the balance sheet date.

Borrowing costs totalling EUR 609 thousand (previous year: 74 thousand) were capitalized as property, plant and equipment in the financial year. The underlying finance cost rates in the past financial year were between 4.53 percent and 6.80 percent (previous year: 4.87 percent and 6.00 percent).

Total impairment losses on fixed assets in the financial year were EUR 461 thousand (previous year: 915 thousand). Of that total, EUR 117 thousand (previous year: 0) was attributable to the Construction segment, EUR 335 thousand (previous year: 915 thou- NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 115

sand) to the Equipment segment, and EUR 9 thousand (previous year: 0) to the Resources segment. Of the total, EUR 332 thousand (previous year: 915 thousand) related to intangible assets and EUR 129 thousand (previous year: 0) to property, plant and equipment.

Investments accounted for using the equity method and participations in EUR '000 Investments ac- Cost of purchase/cost of manufacturing counted for using Participations Total 01.01.2009 9,111 4,594 13,705 Change in scope of consolidation 0 0 0 Additions 1,507 0 1,507 Disposals 0 179 179 Transfers 0 0 0 Currency adjustment 405 1 406 31.12.2009 11,023 4,416 15,439

in EUR '000 Investments ac- Cost of purchase/cost of manufacturing counted for using Participations Total

01.01.2010 11,023 4,416 15,439 Change in scope of consolidation 0 0 0 Additions 678 28 706

Disposals 1,196 0 1,196 2010 FINANCIAL STATEMENTS CONSOLIDATED Transfers 0 0 0 Currency adjustment 287 0 287 31.12.2010 10,792 4,444 15,236

in EUR '000 Investments ac- Accumulated depreciation counted for using Participations Total

01.01.2009 0 995 995 Change in scope of consolidation 0 0 0 Additions 0 0 0 Disposals 0 179 179 Transfers 0 0 0 Currency adjustment 0 0 0 31.12.2009 0 816 816 Carrying amount 31.12.2009 11,023 3,600 14,623

in EUR '000 Investments ac- Accumulated depreciation counted for using Participations Total

01.01.2010 0 816 816 Change in scope of consolidation 0 0 0 Additions 0 0 0 Disposals 0 0 0 Transfers 0 0 0 Currency adjustment 0 0 0 31.12.2010 0 816 816 Carrying amount 31.12.2010 10,792 3,628 14,420 116 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

Based on its proportionate shares in associated companies, the following amounts are attributable to the Group:

in EUR '000 2009 2010

Assets (31.12.) 151,327 143,361 Shareholders' equity (31.12.) 33,631 33,799 Liabilities (31.12.) 117,696 109,562 Sales revenues 30,343 25,517 Net profit for year 3,541 1,436

18. DEFERRED TAXES The deferred tax assets and liabilities are distributed across the following balance sheet items:

in EUR '000 31.12.2009 31.12.2010 31.12.2009 31.12.2010

Deferred tax assets Deferred tax liabilities Intangible assets 61 37 3,573 3,783 Property, plant and equipment 1,480 714 12,363 10,744 Inventories 636 990 3,286 939 Receivables and other assets 660 805 1,131 925 Defined benefit plans 2,121 2,296 0 0 Liabilities 5,649 4,800 311 541 Shareholders' equity (hedge reserve) 956 1,342 --- 373 Tax losses carried forward 9,579 10,330 0 0 Consolidation measures 3,186 2,365 3,632 4,220 Offsetting -4,705 -4,231 -4,705 -4,231 Net amount 19,623 19,448 19,591 17,294

Current deferred tax assets excluding losses carried forward totalled EUR 1,356 thousand (previous year: 909 thou- sand); deferred tax liabilities totalled EUR 1,577 thousand (previous year: 1,838 thousand).

In the previous year the disclosures relating to tax losses carried forward presented a cumulative figure for the trade tax and corporation tax. For the sake of greater clarity, only the corporation tax losses carried forward will be included in the disclosures as from financial 2010.

The tax losses carried forward at the year-end are broken down as follows:

in EUR '000 31.12.2009 31.12.2010

Domestic losses (corporation tax) 66,436 60,124 Foreign losses 9,478 11,980 Total 75,914 72,104

Based on our medium-term earnings planning, losses carried forward totalling EUR 37,832 thousand (previous year: 39,690 thousand) were not usable for tax purposes. Current deferred tax assets against losses carried forward in the finan- cial year totalled EUR 3,401 thousand (previous year: 2,490 thousand).

In connection with interests in subsidiaries, temporary differences totalling EUR 3,143 thousand (previous year: 2,844 thou- sand) exist for which no deferred tax liabilities were recognized. NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 117

19. RECEIVABLES FROM CONCESSION ARRANGEMENTS The receivables from concession arrangements comprise the following: in EUR '000 Remaining term 31.12.2009 Remaining term 31.12.2010

1 to 5 years over 5 years 1 to 5 years over 5 years

Service concessions ------9,455 36,419 Total ------9,455 36,419

The short-term portion of the receivables from concession arrangements is EUR 1,401 thousand (previous year: -) and is stated under "Other current financial assets". The financial income from concession arrangements in the financial year to- talled EUR 919 thousand (previous year: -). This is included in the interest income from financial assets.

In the previous year this arrangement was stated under "Receivables from construction contracts", as the operator phase only began at the end of financial 2010. Furthermore, the relevant standard IFRIC 12 covering service concession arrange- ments was only applicable as from financial years beginning on or after March 29, 2009.

BAUER Nimr LLC ("Bauer") signed a contract with Petroleum Development Oman LLC ("the customer") on November 28, 2008 relating to water treatment ("the service"). In performance of the service, Bauer is constructing a plant which it will subsequently operate. Bauer is being paid a fixed amount to operate the plant. According to the agreement, Bauer is obligated to comply with the general standards applicable in the oil and gas industry in constructing and operating the plant, unless otherwise stipulated in the contract. 2010 FINANCIAL STATEMENTS CONSOLIDATED Bauer is further obligated to allow the customer to conduct any necessary inspection and testing. The costs of this are to be borne by the customer. At the end of the service performance period, Bauer is required by the customer to dismantle the plant and recultivate the site (for a fee). The agreement also provides the customer with a purchase option at a price yet to be agreed. The contract runs for a term of 20 years, with an option to extend by a further five years. Bauer is entitled to cancel the contract at any time by means of written notice to the customer. If the contract is cancelled by the customer before the agreed term ex- pires – provided the cancellation is not as a result of bad or failed performance, or insolvency of the operator – the customer is obligated to pay compensation. The pricing incorporates an additional component linked to conditions giving grounds for postponement, though such conditions were not met as per the balance sheet date. The customer undertakes to supply Bauer with a daily minimum of 45,000 cubic metres of water for treatment. If the customer supplies less water, Bauer receives a compensation payment, which may be offset by over-supply quanti- ties in the subsequent months.

20. OTHER NON-CURRENT ASSETS The other non-current assets comprise the following items:

in EUR '000 31.12.2009 31.12.2010

Claims from backup insurance 4,464 4,608 Sundry other non-current assets 5,489 4,148 Total 9,953 8,756 118 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

The sundry other non-current assets were recognized at an effective interest rate of 7.5 percent (previous year: 7.5 percent) and mainly comprise non-current portions of trade receivables. The other non-current assets were neither impaired nor overdue in the year under review (as in the previous year).

21. OTHER NON-CURRENT FINANCIAL ASSETS The other non-current financial assets comprise the following:

in EUR '000 Remaining term 31.12.2009 Remaining term 31.12.2010

1 to 5 years over 5 years 1 to 5 years over 5 years

Receivables from interest rate swaps 0 10 0 0 Sundry other non-current financial assets 21 0 108 0 Total 21 10 108 0

The derivatives are presented in item 36 under "Other disclosures". The other non-current financial assets were neither impaired nor overdue in the year under review (as in the previous year).

CURRENT ASSETS

22. INVENTORIES The inventories comprise the following items:

in EUR '000 31.12.2009 31.12.2010

Raw materials and supplies 105,350 106,388 King piles and sheet piles 1,840 2,065 Finished goods and work in progress and merchandise 256,505 308,846 Payments on account 2,980 3,118 Total 366,675 420,417

Of the inventories, EUR 139,377 thousand (previous year: 175,501 thousand) are stated at net realizable value. The impairment losses on inventories against the net realizable value affecting net expenditure in the financial year totalled EUR 20,475 thousand (previous year: 16,981 thousand).

They are broken down as follows:

in EUR '000 31.12.2009 31.12.2010

Write-downs of inventories due to use 14,427 12,248 Impairment losses on inventories 2,554 8,227 Total 16,981 20,475

Most of the impairment losses relate to the machinery which was not hired out. Significantly fewer used machines were hired out in the year under review on average than in the previous year. Write-downs of used machinery due to use there- fore decreased from EUR 14,427 thousand to EUR 12,248 thousand.

The impairment losses on inventories include both impairment losses on new and used machinery (stated under "Changes in inventories") and on warehouse inventories (stated under "Cost of materials"). NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 119

In order to provide greater clarity, and to differentiate depreciation of fixed assets, from this financial year on the write- downs of inventories due to use are included as a separate item both in the income statement and in the Notes.

These write-downs are attributable to the Equipment segment.

The finished goods and merchandise include machinery and accessories produced internally by the Equipment segment and intended primarily for sale.

We differentiate essentially between two forms of machinery and accessories (referred to in the following as "machines"):

New machines: These are machines manufactured in the financial year or in earlier years which are available for sale but have not yet been hired out. These machines are valued at manufacturing cost or at the lower net realizable value on the balance sheet date.

Used machines: Used machines are machines which are primarily up for sale and which have been temporarily hired out as a secondary sales promotion measure during the financial year or in earlier years. New machines automatically become used machines the first time they are hired out. When hiring out machinery, the net realizable value is determined from the manufacturing cost less the write-downs due to use and impairment losses on inventories. 2010 FINANCIAL STATEMENTS CONSOLIDATED

In the case of a new machine, or a used machine which has not been hired out, the reduction in value against the net real- izable value is recognized by means of an impairment loss.

The sale and hire of machinery relates solely to the Equipment segment.

The following chart sets out the carrying amount before impairment * of the used machinery and accessories along with the rate of hire status on the balance sheet date:

in EUR '000 31.12.2009 31.12.2010

Carrying amount of used machines * 93,145 107,456 of which hired out 24,195 47,952 of which not hired out 68,950 59,504

The rate of hire was relatively low within the year and rose again as the balance sheet date approached. Write-downs of used machinery due to use therefore decreased from EUR 14,427 thousand to EUR 12,248 thousand.

In the financial year, apart from the usual retentions of title, inventories totalling EUR 10,993 thousand (previous year: 11,572 thousand) were provided as security for loans. The securities provided can only be claimed by the lending banks in the event of definitive failure to fulfil contractual obligations, such as defaulting on interest and loan payments or fail- ure to meet agreed financial targets. No claims on securities provided are foreseeable. 120 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

23. RECEIVABLES AND OTHER ASSETS Construction contracts The construction contracts measured according to the percentage of completion method developed as follows:

in EUR '000 2009 2010

Contract costs incurred (plus profits, less losses) for projects not yet completed 295,557 301,571

less down-payments 269,933 280,746 Balance 25,624 20,825 of which: Receivables from construction contracts (PoC) 54,229 57,267 of which: Liabilities from construction contracts (PoC) 28,605 36,442

Development of receivables and other assets The receivables and other assets comprise the following:

in EUR '000 31.12.2009 31.12.2010

Receivables from construction contracts (PoC) 54,229 57,267 Trade receivables 179,146 208,946 Receivables from joint ventures 1,030 6,012 Receivables from enterprises in which the company has participating interests 928 370 Other current assets 42,341 47,172 Other current financial assets 8,090 9,342 Total 285,764 329,109

The following table presents the changes in value adjustments to current receivables:

in EUR '000 31.12.2009 31.12.2010

Value adjustments at start of financial year 52,813 59,194 Change in scope of consolidation 1,809 0 Currency adjustment -50 1,492 Allocation 13,146 29,983 Reversal 7,528 10,737 Consumption 996 4,695 Value adjustments at end of financial year 59,194 75,237

The value adjustment for foreseeably uncollectable trade receivables of EUR 75,237 thousand (previous year: 59,194 thousand) was calculated taking into account individual risks and on the basis of past experience in relation to payment default. Value adjustments were applied in respect of individual claims as well as on a portfolio flat-rate basis. The individ- ual value adjustments were translated into flat-rate percentages spread across the age structure of the receivables. Within the individual value adjustments, 100 percent of the claim receivable was usually adjusted. Taking into account these value adjustments, the carrying amount of these receivables at the balance sheet date was EUR 208,946 thou- sand (previous year: 179,146 thousand). The calculation of value adjustments in respect of uncertain receivables is based to a large extent on estimates and assessments of individual claims, incorporating considerations of the creditworthiness and late-payment record of the customer concerned as well as current economic trends and historical experience in relation to default. NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 121

The following table presents an analysis of the due dates of gross carrying amounts of trade receivables: in EUR '000 Carrying amount Carrying amount 31.12.2009 31.12.2010 Trade receivables (gross carrying amount) 238,340 284,183 Value adjustments in respect of trade receivables 59,194 75,237 Trade receivables (net carrying amount) 179,146 208,946 of which neither impaired nor overdue at closing date 51,291 81,613 of which not impaired at closing date and overdue in the following time bands: 127,855 127,333 - less than 30 days 43,646 25,287 - between 30 and 60 days 21,031 19,717 - between 60 and 90 days 9,742 16,444 - more than 90 days 53,436 65,885

With regard to the trade receivables which were neither impaired nor delayed in payment, there were no indications at the balance sheet date that the debtors concerned will not fulfil their payment obligations. Credit ratings are derived from an active system of claims management with reference to the relevant credit history and from continuous monitoring of the creditworthiness of our customers based on information obtained from both internal and external sources. The other current assets were neither impaired nor overdue in the year under review (as in the previous year). They mainly comprise miscellaneous tax refund claims and claims against employees and against welfare benefit funds as well as ac- crued interest and insurance premiums and other prepayments and deferred charges.

A total of EUR 602 thousand (previous year: 5,169 thousand) in monetary assets were pledged as securities against loans. 2010 FINANCIAL STATEMENTS CONSOLIDATED These related to assignment of property. The current portion of the receivables from foreign exchange forward contracts included in the current financial assets in the financial year totalled EUR 117 thousand (previous year: 3 thousand). The payments on account for intangible assets shown under "Other current assets" totalled EUR 264 thousand (previous year: 541 thousand) in the year under review. Borrowing costs totalling EUR 0 thousand (previous year: 254 thousand) were capitalized under receivables from con- struction contracts in the financial year. The underlying finance cost rates in the past financial year were between 4.87 percent and 6 percent. In the 2010 financial year impairment totalled EUR 29,983 thousand (previous year: 13,146 thousand).

24. CASH AND CASH EQUIVALENTS The cash and cash equivalents totalling EUR 27,613 thousand (previous year: 37,053 thousand) include credit balances at banks and petty cash stocks.

25. SHAREHOLDERS' EQUITY The subscribed capital of the Group at the balance sheet date totalled EUR 73,001 thousand (previous year: 73,001 thou- sand), and is divided into 17,131,000 no-nominal-value bearer shares with full dividend rights. Of the shares issued, no shares have been held by the Group since the stock market listing.

The shareholder structure of BAUER Aktiengesellschaft is as follows: in EUR '000 31.12.2009 31.12.2010

% EUR '000 % EUR '000

Bauer family 48.19 35,182 48.19 35,182 Free float 51.81 37,819 51.81 37,819 Total 100.00 73,001 100.00 73,001 122 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

With regard to the disclosures relating to shares held in BAUER Aktiengesellschaft, refer to the Notes to the annual finan- cial statements of BAUER Aktiengesellschaft as per December 31, 2010 published in the German Federal Gazette ("Bund- sanzeiger").

Authorized capital / Subscription rights The share capital of the company is EUR 73,001,420.45 and is divided into 17,131,000 no-nominal-value bearer shares. Article 4, Clause 2 of the company's Articles of Association states that shareholders' rights to have their shares evidenced by certificate shall be excluded, unless the evidencing of ownership is required according to the rules applicable at a stock ex- change listing the shares. Contrary to Section 60, Subsection 2, Clause 3 of the German Stock Corporation Act (AktG), in the event of a capital increase it may be stipulated that new shares participate in the profits. Article 4, Clause 4 of the company's Articles of Association states that the Management Board is authorized, with the consent of the Supervisory Board, to increase the share capital of BAUER Aktiengesellschaft, in whole or in part, once or more than once, by June 25, 2013 by up to a total of EUR 2,000 thou- sand by the issue of new no-nominal-value bearer shares against cash and/or non-cash contributions (authorized capital). The shareholders are thereby to be granted a right of subscription in principle. The legal subscription right may also be granted in that the new shares are acquired by a bank or consortium of banks nominated by the Management Board, subject to the obli- gation that they be offered to the company's shareholders for purchase. The Management Board is further authorized, with the consent of the Supervisory Board, to exclude the legal subscription rights of shareholders in the following cases: • in the event of a capital increase against non-cash contributions in the course of acquisition of a business, parts of a business or shares in businesses; • in the event of capital increases against cash contributions where the issue amount of the new shares issued excluding shareholders' subscription rights pursuant to Section 186, Subsection 3, Clause 4 AktG does not fall materially below the market price of the already quoted shares of the same category and structure, and the total pro rata amount of the share capital accounted for by the new shares issued excluding shareholders' subscription rights pursuant to Section 186, Subsection 3, Clause 4 AktG does not exceed 10 percent of the existing share capital at the time this authority takes effect and at the time of exercising this authority. Shares issued in direct or corresponding application of Section 186, Subsection 3, Clause 4 AktG during the term of this authority until the time it is exercised are to be set off against the said 10 percent limit of the share capital; • to avoid residual amounts.

The Supervisory Board is authorized to amend Article 4 of the Articles of Association accordingly following complete or partial execution of the increase in share capital or on expiration of the period of authority.

The remaining shareholders' equity of the BAUER Group developed as follows:

in EUR '000 31.12.2009 31.12.2010

I. Capital reserve 38,404 38,404 II. Other revenue reserves and net earnings available for distribution 263,297 301,213 301,701 339,617 III. Minority interests 27,182 31,248 Total 328,883 370,865

The other changes depicted in the development of shareholders' equity include an amount of EUR 1,528 thousand relating to a transfer from the reserves from hedging transactions to the revenue reserves. This is a correction to a hedging relation- ship from the two previous years. NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 123

ADDITIONAL DISCLOSURES REGARDING CAPITAL MANAGEMENT

The object of Bauer's capital management is to safeguard a strong financial profile. In particular, it aims to provide share- holders with appropriate dividend payments and to safeguard a good credit rating and servicing of capital on behalf of lenders. We also aim to provide ourselves with adequate financial resources to sustain our growth strategy. At present, Bauer is rated BB+ outlook stable by Standard & Poor's. The risk profile is actively managed and monitored. This is focused primarily on key indicators such as the equity ratio, net debt and net profit or loss for the period.

The key indicators are presented below:

in EUR '000 31.12.2009 31.12.2010

Shareholders' equity 401,884 443,866 Equity ratio 33.9 % 33.2 % Net profit or loss 42,028 39,789 Net debt 445,727 519,711 Financial indebtedness 482,780 547,324 Liquid funds 37,053 27,613 Net debt / EBITDA * 2.84 3.14 EBITDA / net interest coverage * 5.53 5.12

* Previous year's figures adjusted; see Notes items 11 and 22

As part of the capital management strategy covering the subsidiaries of the BAUER Group, it is ensured that member companies are provided with an equity base in line with local requirements. Our aim in doing this is to provide the nec- 2010 FINANCIAL STATEMENTS CONSOLIDATED essary flexibility in terms of finance and liquidity. In the year under review all externally imposed capital covenants were fulfilled. For promissory notes this means an equity ratio above 25 percent and a ratio below 4 of net debt to EBITDA and above 2.8 of EBITDA to net interest coverage.

In the income statement, income from operating investments totalling EUR 0 thousand (previous year: 341 thousand) is stated under other income and thus is included in the EBITDA. However, for the Compliance Certificate (confirmation of our covenants) EBITDA is measured excluding income from operating investments. 124 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

NON-CURRENT LIABILITIES

26. NON-CURRENT LIABILITIES The non-current portions of the liabilities comprise the following:

in EUR '000 Remaining term 31.12.2009 Remaining term 31.12.2010

1 to 5 years over 5 years 1 to 5 years over 5 years

Liabilities to banks 249,290 72,814 268,281 73,884 Liabilities from finance lease agreements 16,752 2,046 16,895 1,862 Other non-current liabilities 6,398 0 8,580 0 Other non-current financial liabilities 6,659 4,214 9,025 4,673 Total 279,099 79,074 302,781 80,419

in EUR '000 Fair value Interest rate margin

31.12.2009 31.12.2010 31.12.2009 31.12.2010

Liabilities to banks 326,447 265,310 0.57 - 7.64 % 0.82 - 5.32 % Liabilities from finance lease agreements 21,414 18,757 2.45 - 8.67 % 2.75 - 7.89 % Other non-current financial liabilities 10,815 12,920 1.6 - 11.0 % 1.73 - 6.66 % Total 358,676 296,987 ------

The other non-current liabilities include non-current portions of liabilities from obligations in respect of part-time retirement and service anniversary payments as well as trade payables. The other non-current financial liabilities mainly comprise the fair values of the derivatives as well as other liabilities to finance companies and convertible bonds (see the Notes to the financial instruments in section 36).

27. DEFINED BENEFIT PLANS For employees of Group companies in Germany, in particular, retirement plans are provided on the basis of direct or indi- rect defined benefit plans. These are regularly based on the time employees have worked for the company and on their remuneration, or on fixed pension commitments not linked to pay. The defined benefit liabilities are measured on an actuarial basis according to the Projected Unit Credit method, taking account of future developments.

The calculations are based on the following actuarial assumptions:

in % 31.12.2009 31.12.2010

Interest rate 5.3 5.3 Rate of salary increase 3.0 3.0 Rate of pension increase 2.0 2.0 Investment income of plan assets 1.6 1.6

As the fluctuation rate, a probability of fluctuation, declining by age, of around 5 percent p.a. (previous year: 5 percent p.a.) was assumed across the entire workforce. No fluctuation among employees aged 55 or over was assumed. NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 125

Calculation of provisions for defined benefit plans and similar obligations: in EUR '000 31.12.2009 31.12.2010

Present value of pension claims financed by a fund 1,356 1,484 less applicable fair value of plan assets -177 -188 Present value of pension claims not financed by a fund 54,040 56,509 Adjustment amount based on (non-allocated) actuarial gains/losses -8,900 -8,765 Provisions for defined benefit plans and similar obligations 46,319 49,040

The defined benefit obligation has developed as follows in the financial year: in EUR '000 31.12.2009 31.12.2010

Start of year 50,979 55,396 Change in scope of consolidation 0 0 Current service costs 1,131 1,280 Interest expenses 2,746 2,846 Actuarial gains/(losses) 2,133 158 Payments made -1,593 -1,687 End of year 55,396 57,993

Development of plan assets: 2010 FINANCIAL STATEMENTS CONSOLIDATED in EUR '000 31.12.2009 31.12.2010

Applicable fair value of plan assets at start of financial year 166 177 Actual income from plan assets 3 3 Contributions 8 8 Applicable fair value of plan assets at end of financial year 177 188

The plan is in the form of a backup insurance policy.

The actual income from plan assets totals EUR 3 thousand (previous year: 3 thousand). The actual return achieved is 1.7 percent (previous year: 1.4 percent). The projected unit credit indicates the pension claims of the employees according to the conditions applying at the balance sheet date. By contrast, the provision is created on the basis of actuarial assump- tions which ignore reference date-related fluctuations within the limits stipulated by IAS 19 (+/- 10 percent of the projected unit credit). Of the provisions for defined benefit plans and similar obligations, EUR 1,660 thousand (previous year: 1,536 thousand) are due within one year.

The amounts recorded in the result are calculated as follows: in EUR '000 31.12.2009 31.12.2010

Current service costs 1,131 1,280 Actuarial (gains)/losses 166 294 Interest costs for vested claims 2,746 2,846 Projected income from plan assets -3 -3 Net periodic pension costs 4,040 4,417 126 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

The defined benefit liabilities developed as follows:

in EUR '000 31.12.2009 31.12.2010

At 01.01. 43,919 46,319 Change in scope of consolidation 0 0 Net periodic pension costs 4,040 4,417 Disbursements -1,593 -1,687 Contributions to plan assets -8 -8 Effects from transfers -39 -1 At 31.12. 46,319 49,040

The following overview presents the development of the present value of the defined benefit obligation, the applicable fair value of the plan assets and the development in plan asset performance since the changeover to IFRS as at December 31 of each year:

in EUR '000 2006 2007 2008 2009 2010

Present value of defined benefit obligation 51,318 45,833 50,979 55,396 57,993 Fair value of plan assets -145 -155 -166 -177 -188 Loss/(profit) 51,173 45,678 50,813 55,219 57,805

in EUR '000 2006 2007 2008 2009 2010

Empirical value-based adjustments to plan liabilities 1,261 303 673 -325 159

Effects of changes in actuarial assumptions 5,231 -9,757 1,867 2,473 0

Empirical value-based adjustments to plan assets 3 -1 -1 0 0 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 127

CURRENT LIABILITIES

28. CURRENT LIABILITIES in EUR '000 31.12.2009 31.12.2010 Liabilities to banks 95,953 141,252 Advances received for orders 5,829 15,852 Liabilities from construction contracts (PoC) 28,605 36,442 Trade payables 65,375 96,487 Liabilities to enterprises in which the company has participating interests 267 137 Liabilities from finance lease agreements 10,233 9,080 Other current liabilities 101,269 90,205 Other current financial liabilities 24,819 22,372 Total 332,350 411,827

The other current liabilities mainly comprise obligations in respect of outstanding invoices, flexitime and holiday credits, employer's liability insurance associations, the compensation levy for the shortfall in handicapped employees, performance bonuses as well as other tax liabilities and liabilities in respect of social security. The other current financial liabilities mainly comprise obligations to leasing and finance companies. The fair values virtually match the carrying amounts. The interest rate margin on current liabilities to banks is 3.84 – 5.25 percent (previous year: 3.1 – 7.0 percent). 2010 FINANCIAL STATEMENTS CONSOLIDATED

29. OTHER PROVISIONS The other provisions have developed as follows in the financial year: in EUR '000 31.12.2009 31.12.2010 At 01.01. 18,768 17,382 Change in scope of consolidation 42 0 Currency adjustment 235 382 Reversal 3,236 4,469 Consumption 2,384 2,046 Allocation 3,957 6,765 At 31.12. 17,382 18,014

The other provisions comprise the following: in EUR '000 31.12.2009 31.12.2010 Risk from contract processing and warranties 15,992 17,138 Litigation 1,197 847 Sundry other provisions 193 29 Total 17,382 18,014

The provisions for risk from contract processing and warranties include all risks arising from carrying out specialist founda- tion engineering work and from the sale of machinery, equipment and tools for specialist foundation engineering, with the associated services. These primarily relate to warranty obligations and to other uncertain commitments. The risk from con- tract processing and warranties is determined specific to project/construction site. The allocated provisions are likely to be used up in the course of 2011. 128 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

30. CONTINGENT LIABILITIES Contingent liabilities are liabilities not yet recognized in the financial statements, which are recognized in the amount of the maximum possible exposure on the balance sheet date.

in EUR '000 31.12.2009 31.12.2010

Liabilities from guarantees 4,403 267

In the construction industry, it is common and essential practice to issue various guarantees to secure obligations arising from construction contracts. These guarantees are usually issued by banks or credit insurance companies (=guarantors), and essentially guarantee quotations, contract performance, prepayments and warranty commitments. In the event of a guarantee being given, the guarantors have a right of recourse against the Group. A risk of a guarantee being implemented exists only when the underlying contractual obligations are not duly met.

The contingent liabilities were mainly in relation to the securing of contract performance, to warranty obligations and to ad- vance payments. Liabilities from guarantees exist to third parties. In addition, we are subject to joint and several liability in respect of all joint ventures in which we participate.

31. OTHER FINANCIAL OBLIGATIONS

in EUR '000 Remaining term

under 1 year 1 to 5 years over 5 years

31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010

Minimum lease payments from operating leases 6,590 5,239 7,670 8,145 551 203 Other financial obligations 5,746 5,670 2,450 2,475 1,365 1,381

The operating leases relate mainly to mutual agreements about factory and office equipment, as well as to technical equip- ment and machinery which were added in the financial year and are classified as operating leases. The BAUER Group is committed to rental agreements of unlimited term totalling monthly EUR 369 thousand (previous year: 164 thousand).

32. DISCONTINUED OPERATIONS There no plans to discontinue business operations under the terms of IFRS 5.

33. EVENTS AFTER THE REPORTING PERIOD No events subject to mandatory reporting in accordance with IAS 10 occurred after December 31, 2010.

34. SEGMENT REPORTING Reporting on the segments of the BAUER Group was implemented in accordance with IFRS 8, as in the previous year. The internal organizational and management structure and the internal system of reporting to the Management Board and Supervisory Board dictate the segmentation employed by the BAUER Group.

The BAUER Group comprises the Construction, Equipment and Resources segments. NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 129

Construction The core business of the Construction segment is specialist foundation engineering. Complete excavation pits and foundation works, often in difficult subgrade conditions, are carried out for major infrastructure projects. In order to offer customers a full range of services, the companies of the BAUER Group additionally offer other construction services, often involving a major specialist foundation engineering element. Examples of this include bridges, environmental engineering, remediation and building renovation projects. In order to portray development trends, the Construction segment sales are additionally broken down into the subdivi- sions of "Specialist Foundation Engineering, Germany" and "Specialist Foundation Engineering, International" in the management report. The Construction segment is founded on the close interlinking of all construction activities.

Equipment In the Equipment segment, machinery for all specialist foundation engineering processes and for deep drilling is developed and manufactured for worldwide distribution. The specialist foundation engineering equipment can be employed to produce large-diameter and small-diameter bores for piles, diaphragm walls, anchors, injections and wells. The deep drilling equipment can be employed to drill for geothermal energy, oil and gas down to a depth of 5,000 metres. Equipment for ramming and soil improvement is also manufactured. The range is supplemented by a wide selection of add-on units and ancillary equipment, covering all the processes involved in specialist foundation engineering.

Resources The Resources segment brings together all the Group companies providing products and services relating to the remediation and extraction of natural resources essential to human life. They include environmental technology companies involved in the treatment of soil and groundwater as well as companies involved in exploratory drilling and mining of raw materials and drilling 2010 FINANCIAL STATEMENTS CONSOLIDATED of wells and geothermal energy sources. This segment also includes companies which manufacture and sell materials for the engineering of bore holes, specifically for wells and geothermal energy sources.

The Other segment comprises the central services (accounting, human resources, IT etc.) provided by BAUER Aktienge- sellschaft to the Group companies as well as other units not assignable to the separately listed segments, providing services such as in-house and external education and training and centralized research and development.

The intersegmental consolidation effects in this context are grouped under Consolidation. This includes offsetting of intra- Group sales between the segments as well as income and expenses and interim results. The intersegmental consolidation effects are adjusted within the respective segments.

The segment result for the period reflects the financial income and expenses as well as the net earnings of shares valued at-equity and the income tax expenditure. The segment assets and liabilities incorporate all the assets and liabilities of the Group. In contrast to the previous year, in financial 2010 the interest-bearing assets and financial liabilities, defined benefit plans and income tax re- ceivables and payables were stated under the respective segment assets and liabilities corresponding to the change from net profit or loss for the period to segment result. Furthermore, for the sake of greater clarity the intersegmental consolidation effects in as- sets and liabilities were for the first time stated under Consolidation. The previous year figures have been adjusted accordingly.

Total Group revenues, consolidated revenue and sales revenues with third parties The consolidated revenues reflect the performance of all the companies included in the scope of consolidation. The total Group revenues represent the revenues of all the companies forming part of our Group. The difference between the consoli- dated revenue and the total Group revenues is derived from the revenues of the associated companies and from our sub- contractor shares in consortia which are not included in the consolidated revenues.

The sales revenues with third parties are allocated to the business segments according to the customer's location. 130

Segment Reporting of the BAUER Group

SEGMENT REPORT BY BUSINESS SEGMENT Construction Equipment

in EUR '000 2009 2010 2009 2010

Total revenues (Group) * 570,017 615,403 608,477 581,682

Sales revenues with third parties 487,894 505,758 456,468 469,252

Sales revenues between business segments 13,818 16,971 73,489 49,670

Changes in inventories * -4,660 4,331 19,352 11,857

Other capitalized goods and services for own account 1,314 801 28,828 4,971

Other income 21,852 38,656 19,011 21,068

CONSOLIDATED REVENUES 520,218 566,517 597,148 556,818

Depreciation of fixed assets -34,846 -39,648 -15,022 -14,863 of which impairment losses on fixed assets 0 -117 -915 -335

Write-downs of inventories due to use * 0 0 -14,427 -12,248

OPERATING RESULT 25,746 28,798 51,306 48,283

Financial income 5,859 5,158 1,087 1,689

Financial expenses -15,837 -16,916 -16,396 -20,973

Share of the profit or loss of associated companies accounted for using the equity method 3,240 1,408 10 7

Income tax expense -5,899 -8,453 -11,041 -8,106

NET PROFIT OR LOSS 13,109 9,995 24,966 20,900

ADDITIONAL INFORMATION ON THE BALANCE SHEET

SEGMENT ASSETS 31.12. 422,361 436,833 622,620 690,195

of which shares in associated companies accounted for using the equity method 7,845 7,528 81 82

of which capital investments in fixed assets 68,814 51,006 54,676 22,483

SEGMENT LIABILITIES 31.12. 301,453 303,479 446,118 488,783

ADDITIONAL INFORMATION ON THE INCOME STATEMENT

Major non-cash segment items *

Impairment losses on inventories 0 -130 -2,554 -7,195

Allocation of impairment of receivables -6,494 -27,221 -5,104 -2,507

SEGMENT REPORT BY REGION Germany Europe (other) Europe excluding EU

in EUR '000 2009 2010 2009 2010 2009 2010

Total revenues (Group) 361,402 339,114 221,901 152,630 98,113 130,808

Sales revenues with third parties 352,400 278,656 192,061 138,790 58,966 100,931

Non-current assets 31.12. 275,870 273,325 21,944 19,648 7,881 8,708

* Previous year figures adjusted. Compared to financial 2010, in 2009 the impairment losses on inventories in the Equipment segment included under "Depreciation of fixed assets" in an amount of EUR 2,554 thousand were reallocated to "Changes in inventories". In addition, the Mining division of SCHACHTBAU NORDHAUSEN GmbH was reallocated to the Resources segment. NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 131

Resources Other Consolidation Group

2009 2010 2009 2010 2009 2010 2009 2010

174,302 177,744 29,010 30,761 -106,030 -101,573 1,275,776 1,304,017

152,003 156,398 178 265 0 0 1,096,543 1,131,673

3,485 5,546 26,951 27,398 -117,743 -99,585 0 0

-1,145 -407 0 0 7,191 20,440 20,738 36,221

417 620 70 40 40,499 23,917 71,128 30,349

5,345 5,078 1,166 2,243 -9,742 -9,688 37,632 57,357

160,105 167,235 28,365 29,946 -79,795 -64,916 1,226,041 1,255,600

-5,904 -7,259 -2,806 -3,144 0 0 -58,578 -64,914

0 -9 0 0 0 0 -915 -461

0 0 0 0 0 0 -14,427 -12,248

5,997 8,075 830 725 484 2,474 84,363 88,355

698 2,198 4,141 5,931 -9,456 -10,905 2,329 4,071

-3,632 -6,506 -2,235 -3,176 7,370 11,171 -30,730 -36,400 2010 FINANCIAL STATEMENTS CONSOLIDATED

291 21 0 0 0 0 3,541 1,436

-249 1,510 -1,514 -1,214 1,228 -1,410 -17,475 -17,673

3,105 5,298 1,222 2,266 -374 1,330 42,028 39,789

144,595 217,075 19,253 12,288 -23,668 -18,642 1,185,161 1,337,749

3,097 3,182 0 0 0 0 11,023 10,792

20,614 20,526 2,786 3,253 0 0 146,890 97,268

97,103 154,140 52,154 52,168 -113,551 -104,687 783,277 893,883

0 -902 0 0 0 0 -2,554 -8,227

-1,548 -255 0 0 0 0 -13,146 -29,983

Asia-Pacific, Middle East and Central Asia America Africa Group Far East and Australia

2009 2010 2009 2010 2009 2010 2009 2010 2009 2010

213,097 203,563 165,538 252,441 137,849 155,784 77,876 69,677 1,275,776 1,304,017

181,201 186,939 129,865 231,537 119,348 133,146 62,702 61,674 1,096,543 1,131,673

50,637 55,590 31,234 44,809 46,200 54,533 7,950 8,385 441,716 464,998 132 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

OTHER DISCLOSURES

35. CASH FLOW STATEMENT The funds shown in the cash flow statement comprise only the cash and cash equivalents stated on the balance sheet. The cash flow statement details payment flows, broken down by inflow and outflow of funds from operating activities and from investing and financing activities. The cash flow from operating activities is derived indirectly from the pre-tax profit. The pre-tax profit is adjusted by non- cash transactions. The cash flow from operating activities is produced taking account of the changes in working capital. Investing activities include additions to property, plant and equipment and to financial assets and intangible assets, as well as income from the sale of assets. Financing activities include outflows of cash and cash equivalents arising from dividend payments as well as the change in other financial indebtedness. The changes in balance sheet items applied for the preparation of the cash flow statement are not directly derivable from the balance sheet, as the effects of currency translation and changes in the scope of consolidation, as well as the alloca- tion and elimination of value adjustments on trade receivables, do not affect payments and are stripped out.

36. FINANCIAL INSTRUMENTS In its business operations and financing activities the BAUER Group is subject in particular to fluctuations in exchange rates and interest rates. It is the company's policy to exclude, or at least limit, these risks by entering into hedge trans- actions. All hedging measures are controlled and executed centrally by BAUER Aktiengesellschaft. Application of the segregation-of-duties approach ensures that there is an adequate split between the trading and execu- tion functions. The segregation-of-duties approach is implemented by spreading functions across the Management Board (financial reporting) and the corporate departments (operational handling). All derivatives transactions are entered into only with banks of the highest credit rating.

MARKET RISKS

Foreign exchange rate risks Foreign exchange rate risks under the terms of IFRS 7 are created by financial instruments which are denominated in a currency different to the functional currency and are of a monetary nature. Exchange rate-related differences when convert- ing financial statements into the Group currency are ignored. All non-functional currencies in which the BAUER Group en- ters into financial instruments are classed, as a matter of principle, as relevant risk variables. The existing foreign exchange forward contracts safeguard our currency hedging strategy. Within the BAUER Group, the primary monetary financial instruments are either denominated directly in functional currency or are largely transferred into the functional currency by means of derivatives. In view of the usually short-term maturity of the instruments too, possible changes in exchange rates have only very minor effects on earnings or equity. For the purposes of sensitivity analysis, foreign exchange rate risks arising from monetary financial instruments which were not concluded in the functional currencies of the individual member companies of the BAUER Group are included in the analysis. If the euro had been 10 percent higher/lower in value at December 31, 2010, owing to the changes in fair value of foreign exchange forward contracts from hedge accounting the shareholders' equity would have been EUR 2,418 thou- sand (previous year: 0) higher or EUR 2,956 thousand (previous year: 0) lower respectively. If the euro had risen/fallen in value by 10 percent relative to the hedged foreign currencies as per December 31, 2010, owing to the effect of changes in fair value the results (previous year: results) would overall have been EUR 883 thousand (previous year: 2,588 thousand) higher or EUR 976 thousand (previous year: 3,056 thousand) lower respectively. NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 133

If the euro had been 10 percent higher/lower in value at December 31, 2010, the effect on results of changes in fair value of foreign exchange hedging instruments to which hedge accounting is not applied would have been EUR 1,512 thousand (previous year: 720 thousand) less or EUR 1,356 thousand (previous year: 624 thousand) more respectively. In the event of a 10 percent increase/decrease in value, the hypothetical effect on overall results would have been EUR -629 thousand (previous year: 1,868 thousand) or 380 thousand (previous year: -1,476 thousand) respectively. In 2010, the sensitivity effects mainly related to the US dollar. There are no other concentrations of risk.

Interest rate risks The existing interest rate swaps serve to safeguard our financing and interest rate hedging strategy. Agreements exist in respect of swaps from variable to fixed interest rates in order to exclude the risk of fluctuation in market interest rates. Changes in market interest rates affect the interest results of variable-rate primary financial instruments of which the inter- est payments are not designated as underlying transactions as part of cash-flow hedges against interest rate risks, and consequently are included in the calculation of earnings-related sensitivity. Changes in market interest rates of interest rate derivatives (interest rate swaps, interest rate/currency swaps) which are not embedded in a hedging relationship pursuant to IAS 39 have effects on financial income and expenses (net valuation based on adjustment of financial assets to applicable fair value) and so are included in the calculation of earnings-related sensitivity. The interest rate sensitivity analyses are based on the following assumptions: If the market interest rate level at December 31, 2010 had been 100 base points higher/lower, owing to the changes in fair value of interest rate derivatives from hedge accounting the shareholders' equity would have been EUR 1,779 thousand

(previous year: 2,816 thousand) higher or EUR 2,954 thousand (previous year: 2,923 thousand) lower respectively. In the 2010 FINANCIAL STATEMENTS CONSOLIDATED event of a 100 base points increase/decrease, the effect on results of changes in fair value of interest rate derivatives not in line with hedge accounting would have been EUR 2,033 thousand (previous year: 1,625 thousand) higher or EUR 2,871 thousand (previous year: 1,723 thousand) lower respectively. If the market interest rate level had increased/decreased by 100 base points, the result on liabilities and assets subject to variable interest rates would have been EUR 762 thousand (previous year: 304 thousand) lower/higher respectively. In the event of a 100 base points increase/decrease, the hypo- thetical effect on overall results would have been EUR 1,271 thousand (previous year: 1,321 thousand) or -2,109 thousand (previous year: -1,419 thousand) respectively.

Raw material risks Raw material risks to which the BAUER Group is exposed in respect of availability and potential fluctuations in price on the market are excluded, or limited, by means of supply promises and fixed pricing agreements entered into with suppliers prior to execution of contracts. The raw material risk relates mainly to steel.

Liquidity risks The liquidity risk is managed by means of business planning, which ensures that the necessary funds to finance operating activities and current and future capital investments are made available at the appropriate time, in the required currency, and at optimum cost, in all Group companies. In liquidity risk management, the liquidity requirement arising from operating activities, from investment activities and from other financial measures is determined in the form of a banking report and a liquidity plan. Liquidity is guaranteed at all times by means of a liquidity forecast focused on a fixed planning horizon and by unused lines of credit and guarantee facilities. 134 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

The following tables present the contractually agreed (non-discounted) interest payments and capital repayments in respect of primary financial liabilities and derivative financial instruments of the BAUER Group:

in EUR '000 Carrying amount Cash flows Cash flows Cash flows 31.12.2009 2010 2011 to 2014 2015 ff. Liabilities to banks 418,057 103,101 323,794 76,624 Liabilities from finance lease agreements 29,031 11,778 19,083 2,331 Other liabilities 106,896 101,269 5,627 0 Other financial liabilities 35,692 25,638 7,968 3,240 Liabilities from construction contracts 28,605 28,605 0 0 Trade payables 66,146 65,375 771 0 Liabilities to enterprises in which the company has participating interests 267 267 0 0

in EUR '000 Carrying amount Cash flows Cash flows Cash flows 31.12.2010 2011 2012 to 2015 2016 ff. Liabilities to banks 483,417 158,790 288,226 79,782 Liabilities from finance lease agreements 27,837 10,155 18,789 1,997 Other liabilities 97,853 90,205 7,648 0 Other financial liabilities 36,070 17,514 13,009 8,606 Liabilities from construction contracts 36,442 36,442 0 0 Trade payables 97,419 96,487 932 0 Liabilities to enterprises in which the company has participating interests 137 137 0 0

There were no instances of defaulting on interest payments or capital repayments in the period under review. No infringe- ment of loan agreements occurred. There are no other concentrations of risk. NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 135

The due dates of derivative financial instruments based on outflow and inflow of cash and cash equivalents are as follows: in EUR '000 at 31.12.2009 2010 2011 to 2014 2015 onwards

Receivables from foreign exchange options 0 0 0 Outflow of cash and cash equivalents -11,512 0 0 Inflow of cash and cash equivalents 11,512 0 0 Receivables from foreign exchange forward contracts 0 0 0 Outflow of cash and cash equivalents -402 0 0 Inflow of cash and cash equivalents 402 0 0 Receivables from interest rate swaps -120 -478 0 Outflow of cash and cash equivalents -172 -687 0 Inflow of cash and cash equivalents 52 209 0 Liabilities from foreign exchange options 0 0 -508 Outflow of cash and cash equivalents -4,988 0 -730 Inflow of cash and cash equivalents 4,988 0 222 Liabilities from foreign exchange forward contracts 0 0 0 Outflow of cash and cash equivalents -18,340 0 0 Inflow of cash and cash equivalents 18,340 0 0 Liabilities from interest rate swaps -5,139 -11,015 -2,444 Outflow of cash and cash equivalents -8,884 -21,434 -4,200

Inflow of cash and cash equivalents 3,745 10,419 1,756 2010 FINANCIAL STATEMENTS CONSOLIDATED

in EUR '000 at 31.12.2010 2011 2012 to 2015 2016 onwards

Receivables from foreign exchange options 0 0 0 Outflow of cash and cash equivalents 0 0 0 Inflow of cash and cash equivalents 0 0 0 Receivables from foreign exchange forward contracts 0 0 0 Outflow of cash and cash equivalents -6,716 -707 0 Inflow of cash and cash equivalents 6,716 707 0 Receivables from interest rate swaps 0 0 0 Outflow of cash and cash equivalents 0 0 0 Inflow of cash and cash equivalents 0 0 0 Liabilities from foreign exchange options 0 0 0 Outflow of cash and cash equivalents 0 0 0 Inflow of cash and cash equivalents 0 0 0 Liabilities from foreign exchange forward contracts 0 0 0 Outflow of cash and cash equivalents -10,423 -18,258 0 Inflow of cash and cash equivalents 10,423 18,258 0 Liabilities from interest rate swaps -5,231 -9,189 -2,260 Outflow of cash and cash equivalents -9,288 -17,990 -4,001 Inflow of cash and cash equivalents 4,057 8,801 1,741

To calculate the cash inflows from interest rate swaps the conditions as per 31.12.2010 were applied. 136 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

Risk of default The risk of default on financial assets exists in terms of the risk of failure of a contract party and thus to a maximum in the amount of the carrying amount of the exposure to the said party. A presentation of the carrying amounts and the resultant maximum risk of default per category is given in the table headed "Progression of balance sheet values". The risk arising from primary financial instruments is countered by means of value adjustments for bad debt, and in Germany also by means of credit insurance cover. As derivative financial instruments are entered into only with banks with a first-class credit rating, and the risk management system sets limits for each party, the actual risk of default is negligible. There are no other concentrations of risk.

Credit risk The credit risk is managed at Group level. Credit risks arise from cash and cash equivalents, derivative financial instruments and deposits at banks. Only banks and financial services companies with a first-class credit rating are selected as partners. No credit limit was exceeded in the reporting period. The management expects no defaults on the part of these business partners.

Other disclosures relating to financial instruments On October 2, 2001, BAUER EGYPT S.A.E. issued an 11 percent convertible bond with a face value of EGP 10,000,000. The term of the convertible bond was originally six years, and was again extended for a further three years. On expiry of the con- vertible bond, the holder has the option to exchange it for 200,000 shares at EGP 50 each. The applicable fair value of the lia- bility component and of the equity conversion component was set as per the issue date of the convertible bond. The applica- ble fair value of the liability component recognized in the non-current financial assets as at December 31, 2010 amounts to EUR 597 thousand (previous year: 586 thousand). The applicable fair value of the equity component recognized in the minority interests as at December 31, 2010 amounts to EUR 324 thousand (previous year: 324 thousand). The Group has taken up loans with variable interest rates and hedged against its interest rate-related cash flow risk by means of swaps. Such interest rate swaps have the commercial effect of converting variable-interest loans into fixed-inter- est loans. In these interest rate swaps, the Group agrees with other parties to swap the difference between the fixed and variable interest rates derived from the agreed nominal amounts at regular intervals.

in EUR '000 Remaining term Nominal volume Fair value

under 1 year 1 to 5 years over 5 years

31.12.09 31.12.10 31.12.09 31.12.10 31.12.09 31.12.10 31.12.09 31.12.10 31.12.09 31.12.10

Interest rate swaps of which in hedge accounting 0 0 66,500 81,500 23,350 14,286 89,850 95,786 -3,296 -2,306 of which not in hedge accounting 5,000 722 15,466 19,000 25,000 41,150 45,466 60,872 -1,679 -4,422 Foreign exchange forward contracts of which in hedge accounting 0 7,688 0 19,900 0 0 0 27,588 0 -1,135 of which not in hedge accounting 19,543 9,763 0 0 0 0 19,543 9,763 -784 55 Foreign exchange forward options of which in hedge accounting 0 0 0 0 0 0 0 0 0 0 of which not in hedge accounting 15,032 0 0 0 0 0 15,032 0 1,154 0 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 137

Net result by valuation category The following table sets out the net profits and losses (before tax) on financial instruments stated in the income statement, broken down by valuation category as per IAS 39: in EUR '000 31.12.2009 31.12.2010

Loans and Receivables -3,302 -17,338 Other Financial Liabilities -25,403 -30,946 Available-for-Sale Financial Assets 29 -9 Financial Assets and Liabilities Held for Trading -2,058 -1,017 Total -30,734 -49,310

The net result of the "Loans and Receivables" category includes results from the creation and reversal of value adjustments in respect of trade receivables as well as interest income.

The net result of the "Other Financial Liabilities" category includes the result from interest expenditure to third parties, for current and non-current loans as well as guaranty commissions.

The net result of the "Available-for-Sale Financial Assets" category includes gains and losses from marketable securities. Equity shares in companies are valued at cost and are not included.

The net result of the "Financial Assets and Liabilities Held for Trading" category includes results from foreign exchange 2010 FINANCIAL STATEMENTS CONSOLIDATED forward contracts and options, as well as results from changes to the fair values of interest rate swaps.

Carrying amounts and fair values The fair value of a financial instrument is the consideration for which an asset might be exchanged, or a debt paid, be- tween informed, willing and mutually independent parties. Where financial instruments are quoted on an active market – such as in particular shares held and bonds issued – the price quoted on the market in question is the fair value. If no active market exists, the fair value is determined by financial valuation methods. For securities (AfS) the BAUER Group has at its disposal the prices quoted on an active market.

For cash and cash equivalents, current trade receivables and other current assets, current trade payables and other cur- rent liabilities, owing to their short remaining terms the carrying amount should be adopted as a realistic estimate of the fair value.

The fair values of non-current assets and financial assets and of non-current liabilities and financial liabilities correspond to the cash values of the payment flows linked to the assets, taking into account the applicable interest rate parameters, which reflect changes in the terms and expectations of the market and of the respective parties.

Investments are valued at cost, as no fair value can be reliably determined owing to the lack of an active market. There is no intention to dispose of the investments in the near future. 138 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

The fair values of financial instruments are determined on the basis of one of the methods set out on the three following levels: • Level 1: Quoted prices on active markets for identical assets or liabilities • Level 2: Other methods in which all incoming information having a material influence on the fair value determined origi- nates from directly and indirectly observable market data • Level 3: Methods using incoming information having a material influence on the fair value determined which does not originate from observable market data

Level 3 was not relevant to the BAUER Group at December 31, 2010.

The financial instruments measured at fair value are assignable to the following levels:

in EUR '000 IAS 39 category 31.12.2009 Level 1 Level 2

Assets Securities AfS 143 143 0 Derivatives not in hedge accounting FAHfT 1,214 0 1,214 Derivatives in hedge accounting n/a 0 0 0 Total 1,357 143 1,214

Equity and liabilities Derivatives not in hedge accounting FLHfT 2,523 0 2,523 Derivatives in hedge accounting n/a 3,296 0 3,296 Total 5,819 0 5,819

in EUR '000 IAS 39 category 31.12.2010 Level 1 Level 2

Assets Securities AfS 133 133 0 Derivatives not in hedge accounting FAHfT 117 0 117 Derivatives in hedge accounting n/a 7 0 7 Total 257 133 124

Equity and liabilities Derivatives not in hedge accounting FLHfT 4,484 0 4,484 Derivatives in hedge accounting n/a 3,448 0 3,448 Total 7,932 0 7,932 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 139

Other disclosures relating to hedging transactions In the 2010 financial year, unrealized results from the market valuation of interest rate swaps and (for the first time) for- eign exchange forward contracts in an amount of EUR 1,061 thousand (previous year: 2,340 thousand) after tax were recognized in the shareholders' equity as a hedge reserve (hedge accounting, cash flow hedge) with no effect on profit and loss. Hedging instruments were always linked to an underlying transaction. In this period, the ineffective portion in an amount of EUR -1 thousand (previous year: -6 thousand) after tax was assigned to the financial expenses. The prospective effectiveness is measured according to the Critical Term Match method and the retrospective effective- ness according to the Dollar Offset method based on the Hypothetical Derivatives method. 2010 FINANCIAL STATEMENTS CONSOLIDATED 140 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

Within the Group, financial instruments are classified in the same way as the respective balance sheet items. The following table presents a progression of the classes to the categories of IAS 39 and the respective market values: Progression of balance sheet values from December 31, 2009 to December 31, 2010:

ASSETS in EUR '000 Loans and Receivables/ Subcategory Carrying amount Other Financial Liabilities

31.12.2009 31.12.2010 31.12.2009 31.12.2010

NON-CURRENT ASSETS Investments at cost 3,600 3,628 0 0

Receivables from concession arrangements at amortized cost 0 45,874 0 45,874

Other non-current assets 9,953 8,756 at amortized cost 5,035 1,965 5,035 1,965 not IFRS 7 4,918 6,791 0 0

Other non-current financial assets 31 108 at fair value 10 7 0 0 at amortized cost 21 80 21 80 not IFRS 7 0 21 0 0

CURRENT ASSETS Receivables and other assets 285,764 329,109 Receivables from construction contracts at amortized cost 54,229 57,267 54,229 57,267 Trade receivables at amortized cost 179,146 208,946 179,146 208,946 Receivables from joint ventures at amortized cost 1,030 6,012 1,030 6,012 Receivables from enterprises in which the company has participating interests at amortized cost 928 370 928 370 Other current assets 42,341 47,172

at amortized cost 3,384 19,386 3,384 19,386 not IFRS 7 38,957 27,786 0 0

Other current financial assets 8,090 9,342 at fair value 1,347 250 0 0 at amortized cost 6,743 9,092 6,743 9,092

Cash and cash equivalents 37,053 27,613 37,053 27,613

Total ASSETS 336,401 415,088 287,569 376,605 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 141

Balance sheet valuation as per IAS 39

Financial Assets and Derivatives in Balance sheet Available for Sale Fair value according to IFRS 7 Liabilities Held for Trading hedge accounting valuation as per IAS 17

31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010

3,600 3,628 0 0 0 0 0 0 3,600 3,628

0 0 0 0 0 0 0 0 0 45,874

0 0 0 0 0 0 0 0 4,053 1,771 0 0 0 0 0 0 0 0 0 0

0 0 10 0 0 7 0 0 10 7 2010 FINANCIAL STATEMENTS CONSOLIDATED 0 0 0 0 0 0 0 0 21 80 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 54,229 57,267 0 0 0 0 0 0 0 0 179,146 208,946 0 0 0 0 0 0 0 0 1,030 6,012

0 0 0 0 0 0 0 0 928 370

0 0 0 0 0 0 0 0 3,384 19,386 0 0 0 0 0 0 0 0 0 0

143 133 1,204 117 0 0 0 0 1,347 250 0 0 0 0 0 0 0 0 6,743 9,092

0 0 0 0 0 0 0 0 37,053 27,613

3,743 3,761 1,214 117 0 7 0 0 291,544 380,296 142 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

EQUITY AND LIABILITIES in EUR '000 Loans and Receivables/ Subcategory Carrying amount Other Financial Liabilities

31.12.2009 31.12.2010 31.12.2009 31.12.2010

NON-CURRENT LIABILITIES Liabilities to banks at amortized cost 322,104 342,165 322,104 342,165 Liabilities from finance lease agreements at amortized cost 18,798 18,757 0 0 Other non-current liabilities 6,398 8,580 Trade payables at amortized cost 771 932 771 932

Sundry other non-current liabilities at amortized cost 984 1,185 984 1,185 not IFRS 7 4,643 6,463 0 0

Other non-current financial liabilities 10,873 13,698 at fair value 4,861 7,597 0 0 at amortized cost 6,012 6,101 6,012 6,101

CURRENT LIABILITIES Liabilities to banks at amortized cost 95,953 141,252 95,953 141,252 Liabilities from finance lease agreements at amortized cost 10,233 9,080 0 0 Liabilities from construction contracts at amortized cost 28,605 36,442 28,605 36,442 Trade payables at amortized cost 65,375 96,487 65,375 96,487 Liabilities to enterprises in which the company has participating interests at amortized cost 267 137 267 137 Other current liabilities 101,269 90,205

at amortized cost 22,158 23,508 22,158 23,508 not IFRS 7 79,111 66,697 0 0

Other current financial liabilities 24,819 22,372 at fair value 958 335 0 0 at amortized cost 23,861 22,037 23,861 22,037

TOTAL EQUITY AND LIABILITIES 684,694 779,175 566,090 670,246 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 143

Balance sheet valuation as per IAS 39

Financial Assets and Derivatives in Balance sheet Available for Sale Fair value according to IFRS 7 Liabilities Held for Trading hedge accounting valuation as per IAS 17

31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010

0 0 0 0 0 0 0 0 326,447 265,310 0 0 0 0 0 0 18,798 18,757 21,414 18,757

0 0 0 0 0 0 0 0 621 895 0 0 0 0 0 0 0 0 792 1,135 0 0 0 0 0 0 0 0 0 0

0 0 1,565 4,408 3,296 3,189 0 0 4,861 7,597 0 0 0 0 0 0 0 0 5,954 5,323

0 0 0 0 0 0 0 0 95,953 141,252 0 0 0 0 0 0 10,233 9,080 10,233 9,080 2010 FINANCIAL STATEMENTS CONSOLIDATED 0 0 0 0 0 0 0 0 28,605 36,442 0 0 0 0 0 0 0 0 65,375 96,487

0 0 0 0 0 0 0 0 267 137

0 0 0 0 0 0 0 0 22,158 23,508 0 0 0 0 0 0 0 0 0 0

0 0 958 76 0 259 0 0 958 335 0 0 0 0 0 0 0 0 23,861 22,037

0 0 2,523 4,484 3,296 3,448 29,031 27,837 607,499 628,295 144 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

37. EXECUTIVE BODIES In the year under review the Supervisory Board comprised the following members:

Chairman • Dr. Klaus Reinhardt, General (retd.), Starnberg

Deputy Chairman • Robert Feiger, Neusäß Member of the Federal Executive Committee of the IG Bauen-Agrar-Umwelt trade union, Frankfurt am Main Supervisory Board, HeidelbergCement AG, Heidelberg Supervisory Board, Zusatzversorgungskasse des Baugewerbes AG, Wiesbaden Supervisory Board, Zusatzversorgungskasse Gerüstbaugewerbe VVaG, Wiesbaden

Employer representatives • Dr.-Ing. Dr.-Ing. E.h. Karlheinz Bauer, Schrobenhausen Former Managing Director of BAUER Spezialtiefbau GmbH, Schrobenhausen • Dipl.-Ing. (FH) Rainer Schuster, Freising Freelance consultant to Bilfinger Berger AG, Mannheim • Dipl.-Ing. (FH) Elisabeth Teschemacher, née Bauer, Schrobenhausen Freelance real estate and construction consultant • Gerardus N. G. Wirken, Breda, Netherlands Freelance consultant on strategy, controlling and accounting Supervisory Board, Batenburg Beheer N.V., Rotterdam/Netherlands, Chairman Supervisory Board, Vendor Beheer B.V., Tilburg//Netherlands, Chairman Supervisory Board, Winters Bouw- en Ontwikkeling B.V., Breda/Netherlands, Chairman Supervisory Board, Rabobank Breda, Breda/Netherlands, Chairman Supervisory Board, NIBO N.V. (to 31.03.2010), Amsterdam/Netherlands, Chairman Supervisory Board, Egeria Investments B.V., Amsterdam/Netherlands, Chairman Supervisory Board, Holonite B.V., Tholen/Netherlands, Chairman Member of the Board of Rabobank Pensionsfonds, Utrecht/Netherlands Supervisory Board, ICTS Europe Holdings B.V., Amsterdam/Netherlands, Chairman • Prof. Dr.-Ing. E.h. Manfred Nußbaumer M.Sc, Munich Construction engineer

Employee representatives • Norbert Ewald, Bad Vilbel Member of the Management Board, Zusatzversorgungskasse des Steinmetz- and Steinbildhauerhandwerks VVaG, Wiesbaden • Ronald Hühne, Nordhausen Project manager, SCHACHTBAU NORDHAUSEN GmbH, Nordhausen NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 145

• Gerhard Piske, Schrobenhausen Project manager, After Sales, BAUER Maschinen GmbH, Schrobenhausen Supervisory Board, BAUER Maschinen GmbH, Schrobenhausen • Dipl.-Ing. Gerold Schwab, Kernen Construction engineer in the Technical Division of BAUER Spezialtiefbau GmbH, Schrobenhausen • Dipl.-Ing. (FH) Walter Sigl, Waidhofen Member of the Management Board of BAUER Maschinen GmbH, Schrobenhausen

Management Board • Prof. Dipl.-Kfm. Thomas Bauer, Schrobenhausen, Chairman, Functions: Participations in Subsidiaries, Accounting, Planning, Controlling Supervisory Board, BAUER Spezialtiefbau GmbH, Schrobenhausen, Chairman Supervisory Board, BAUER Maschinen GmbH, Schrobenhausen, Chairman Supervisory Board, SCHACHTBAU NORDHAUSEN GmbH, Nordhausen, Chairman Supervisory Board, BAUER Resources GmbH, Schrobenhausen, Deputy Chairman Supervisory Board, BAUER EGYPT S.A.E., Cairo, Chairman Supervisory Board, Mannheimer Holding AG, Mannheim • Dipl.-Betriebswirt (FH) Hartmut Beutler, Schrobenhausen, Functions: Finance, Legal Affairs, Investor Relations, Facility Management FINANCIAL STATEMENTS CONSOLIDATED Supervisory Board, BAUER Resources GmbH, Schrobenhausen, Member

Supervisory Board, Raiffeisenbank Schrobenhausen e. G., Schrobenhausen, Chairman 2010 • Dipl.-Ing. Heinz Kaltenecker, Schrobenhausen, Functions: Participations in Subsidiaries, Information Technology, Human Resources, Quality Management, Risk Management, Safety and Environment Supervisory Board, BAUER Resources GmbH (since 08.11.2010), Schrobenhausen, Chairman Supervisory Board, BAUER Spezialtiefbau GmbH, Schrobenhausen, Deputy Chairman Supervisory Board, BAUER Maschinen GmbH, Schrobenhausen, Deputy Chairman Supervisory Board, SCHACHTBAU NORDHAUSEN GmbH, Nordhausen, Deputy Chairman Supervisory Board, German Water & Energy Pakistan (Private) Limited, Islamabad, Pakistan, Chairman • Dipl.-Ing. (FH) Mark Schenk, Pfaffenhofen (to 25.10.2010)

The total remuneration paid to members of the Management Board in the year under review, excluding allocations to provisions for defined benefit plans, was EUR 1,665 thousand (previous year: 1,824 thousand). Of that total, EUR 1,145 thousand (previ- ous year: 1,094 thousand) was not performance-related and EUR 520 thousand (previous year: 730 thousand) was perform- ance-related. The total remuneration includes benefits in kind arising from the private use of a company car and reimbursement of travel expenses for each member of the Management Board, as well as pro rata group accident insurance premiums and employer's liability insurance association contributions. The company pension scheme for Management Board members in- curred pension service costs totalling EUR 86 thousand (previous year: 83 thousand). The pay component entailing vested pension rights, which serves as the basis for calculating pension levels, is significantly lower than the basic salary in all con- tracts. Calculated in accordance with IAS 19, the defined benefit obligation entailed by all pension commitments to members of the Management Board at the year-end was EUR 2,520 thousand (previous year: 2,314 thousand). 146 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

The remuneration paid to the Supervisory Board for the 2010 financial year totalled EUR 254 thousand (previous year: 254 thousand) and was distributed as follows:

in EUR '000 2009 2010

Chairman Dr. Klaus Reinhardt 38 38 Deputy Chairman Robert Feiger 27 27 Employer representatives Dr.-Ing. Dr.-Ing. E.h. Karlheinz Bauer 20 20 Dipl.-Ing. (FH) Rainer Schuster 18 18 Dipl.-Ing. (FH) Elisabeth Teschemacher 18 18 Gerardus N. G. Wirken 20 20 Prof. Dr. Manfred Nußbaumer 20 20 Employee representatives Norbert Ewald 20 20 Ronald Hühne 18 18 Gerhard Riedelsheimer 8 0 Dipl.-Ing. Gerold Schwab 19 20 Dipl.-Ing. (FH) Walter Sigl 18 18 Gerhard Piske 10 18 Total * 254 254

* Rounding to thousands of EUR resulted in a rounding difference of EUR 1 thousand in 2010.

38. DISCLOSURES REGARDING RELATED PARTIES Related parties under the terms of IAS 24 are parties that the reporting enterprise has the ability to control or exercise signifi- cant influence over, or parties that have the ability to control or exercise significant influence over the reporting enterprise. Members of the Management Board of BAUER Aktiengesellschaft are members of Supervisory Boards and Management Boards of other companies with which BAUER Aktiengesellschaft maintains relations in the course of its ordinary business operations. Lease and service contracts exist with members of the Supervisory Board to an amount of EUR 168 thousand (previous year: 168 thousand). Members of the Supervisory Board received pensions totalling EUR 51 thousand (previous year: 50 thousand) in respect of former employment within the BAUER Group. The members of the Supervisory Board, by virtue of their role as employees, received remuneration totalling EUR 421 thousand (previous year: 409 thousand). Lease and service contracts and contracts of employment (except for the remuneration to members of the Management Board dis- closed) exist with members of the Management Board, including close family, in respect of which remuneration to an amount of EUR 1,675 thousand (previous year: 1,471 thousand) was paid. Loan commitments to the BAUER Foundation existed totalling EUR 1,000 thousand (previous year: 1,000 thousand), for which interest amounting to EUR 55 thousand (previous year: 50 thousand) was paid. At the end of the financial year no loan commitments existed to shareholders of BAUER Aktiengesellschaft (previous year: 0). NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 147

Most of the trading volumes between fully consolidated companies of the BAUER Group and related companies are pre- sented in the following table: in EUR '000 Supplies and services rendered Supplies and services received

Share 2009 2010 2009 2010

NDH Entsorgungsbetreibergesellschaft mbH, Bleicherode 25 % 468 0 85 39 TERRABAUER, S.L., Madrid 30 % 6,398 2,632 307 1,703 Wöhr + Bauer GmbH, Munich 33 % 30 31 0 0 NuBa Equipment Ltd., Edmonton 50 % 0 0 0 0 Nuna Drilling F.A.L.C. Ltd., Edmonton 25 % 194 17 0 0 Grunau und Schröder Maschinentechnik GmbH, Drolshagen 30 % 7 52 489 531

in EUR '000 Receivables from Liabilities to

Share 2009 2010 2009 2010

NDH Entsorgungsbetreibergesellschaft mbH, Bleicherode 25 % 14 19 0 4 TERRABAUER, S.L., Madrid 30 % 909 321 0 0 Wöhr + Bauer GmbH, Munich 33 % 5 4 0 0 NuBa Equipment Ltd., Edmonton 50 % 0 1 0 0

Nuna Drilling F.A.L.C. Ltd., Edmonton 25 % 0 0 0 0 2010 FINANCIAL STATEMENTS CONSOLIDATED Grunau und Schröder Maschinentechnik GmbH, Drolshagen 30 % 0 1 87 62

39. FEES AND SERVICES OF THE AUDITORS The fee paid to the auditors and recorded as expenditure in the financial year is broken down as follows:

PricewaterhouseCoopers AG: in EUR '000 2009 2010

Auditing fees 459 487 Fees for tax advice * 36 43 Fees for other certification and valuation work * 96 137 Total 591 667

* Previous year figures adjusted

In addition, Roland Jehle GmbH Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft was engaged to audit the major German capital corporations included in the Group's consolidated financial statements. 148 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

The fees for this recognized in the financial year are broken down in accordance with Section 285, Paragraph 17 and Section 314, Subsection 1, Paragraph 9 HGB as follows:

in EUR '000 2009 2010

Auditing fees 59 54 Fees for tax advice 19 13 Fees for other certification and valuation work 2 0 Total 80 67

40. DECLARATION OF CONFORMITY TO THE GERMAN CORPORATE GOVERNANCE CODE The Management Board and Supervisory Board of BAUER Aktiengesellschaft issued their declaration in accordance with Section 161 of the German Stock Corporation Act (AktG) on December 9, 2010 and published it in a form permanently accessible to shareholders on the company's website at www.bauer.de.

41. AVERAGE NUMBER OF EMPLOYEES

2009 2010 Change

Salaried staff 3,073 3,108 1.1 % Germany 1,776 1,783 0.4 % International 1,297 1,325 2.2 % Industrial & trades 5,555 5,722 3.0 % Germany 2,042 1,989 -2.6 % International 3,513 3,733 6.3 % Apprentices 244 264 8.2 % Total number of employees 8,872 9,094 2.5 % NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 149

42. AUTHORIZATION FOR ISSUE OF THE CONSOLIDATED FINANCIAL STATEMENTS The Management Board has submitted the consolidated financial statements to the Supervisory Board for authorization for issue (the Supervisory Board meeting is scheduled for April 14, 2011).

43. PROPOSAL ON APPROPRIATION OF NET EARNINGS AVAILABLE FOR DISTRIBUTION BAUER Aktiengesellschaft made a net profit available for distribution of EUR 23,579,463.98 in the financial year under review. We propose to the Annual General Meeting the payment to shareholders of a dividend of EUR 0.60 per share (EUR 10,278,600). We further propose that, of the remaining net earnings available for distribution totalling EUR 13,300,863.98, an amount of EUR 68,475.08 be allocated to the other revenue reserves and that the remaining net earnings available for distribution in the amount of EUR 13,232,388.90 be carried forward. No restrictions have been imposed on payment of dividends by the banks or by the Management Board or Supervisory Board pursuant to Article 22, Clause 1 of the company's Articles of Association.

Schrobenhausen, March 31, 2011

The Management Board 2010 FINANCIAL STATEMENTS CONSOLIDATED

Prof. Dipl.-Kfm. Thomas Bauer Dipl.-Betriebswirt (FH) Hartmut Beutler Dipl.-Ing. Heinz Kaltenecker Chairman of the Management Board 150

Major Participations of the BAUER Group at December 31, 2010

NAME AND REGISTERED OFFICE OF COMPANY Capital share Currency in %

1. Fully consolidated companies BAUER Aktiengesellschaft EUR

A. Germany BAUER Spezialtiefbau GmbH, Schrobenhausen, Germany EUR 99.00

BAUER Maschinen GmbH, Schrobenhausen, Germany EUR 99.00 SCHACHTBAU NORDHAUSEN GmbH, Nordhausen, Germany EUR 99.00 SPESA Spezialbau und Sanierung GmbH, Schrobenhausen, Germany EUR 99.00 BAUER Resources GmbH, Schrobenhausen, Germany EUR 99.00 BAUER Training Center GmbH, Schrobenhausen, Germany EUR 100.00 BAUER Designware GmbH, Schrobenhausen, Germany EUR 100.00 BAUER Umwelt GmbH, Schrobenhausen, Germany EUR 100.00 KLEMM Bohrtechnik GmbH, Drolshagen, Germany EUR 100.00 EURODRILL GmbH, Drolshagen, Germany EUR 100.00 BAUER Mietpool GmbH, Schrobenhausen, Germany EUR 100.00 RTG Rammtechnik GmbH, Schrobenhausen, Germany EUR 100.00 MAT Mischanlagentechnik GmbH, Immenstadt, Germany EUR 74.00 PRAKLA Bohrtechnik GmbH, Peine, Germany EUR 100.00 Olbersdorfer Guß GmbH, Olbersdorf, Germany EUR 75.00 SPANTEC Spann- & Ankertechnik GmbH, Schrobenhausen, Germany EUR 90.00 HAUSHERR System Bohrtechnik GmbH, Unna, Germany EUR 100.00 SCHACHTBAU NORDHAUSEN Großprojekte GmbH, Nordhausen, Germany EUR 100.00 MMG Mitteldeutsche MONTAN GmbH, Nordhausen, Germany EUR 100.00 SPESA Korrosionsschutz und Beschichtungen GmbH, Nordhausen, Germany EUR 100.00 HGC Hydro-Geo-Consult GmbH, Freiberg, Germany EUR 100.00 FWS Filter- und Wassertechnik GmbH, Dunningen, Germany EUR 100.00 PURE Umwelttechnik GmbH, Schrobenhausen, Germany EUR 100.00 ErdWärmeNetz GmbH, Schrobenhausen, Germany EUR 100.00 GWE pumpenboese GmbH, Peine, Germany EUR 100.00 SBF-Hagusta GmbH, Peine, Germany EUR 100.00 GWE Prakla Bohrtechnik GmbH, Peine-Stederdorf, Germany EUR 100.00 Esau & Hueber GmbH, Schrobenhausen, Germany EUR 75.50 GF-Tec GmbH, Büttelborn, Germany EUR 60.00 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 151

NAME AND REGISTERED OFFICE OF COMPANY Capital share Currency in %

B. EU excluding Germany BAUER Enviro Kft., Budapest, Hungary HUF 100.00

GWE Budafilter Kft., Mezöfalva, Hungary HUF 80.00 BAUER Ambiente S.r.l., Milan, Italy EUR 100.00 BAUER SPEZIALTIEFBAU Gesellschaft m.b.H., Vienna, Austria EUR 100.00 BAUER Technologies Limited, Beverley, Great Britain GBP 100.00 BAUER RENEWABLES LIMITED, Warrington, Great Britain GBP 100.00 BAUER EQUIPMENT UK LIMITED, Rotherham, Great Britain GBP 100.00 BRK Speciális Mélyépitö Kft., Budapest, Hungary HUF 100.00 BAUER ROMANIA S.R.L., Bucharest, Romania RON 100.00 BAUER BULGARIA EOOD, Sofia, Bulgaria BGL 100.00 BAUER Funderingstechniek B.V., Mijdrecht, Netherlands EUR 100.00 BAUER Foundations (IRL) Ltd., Dublin, Ireland EUR 100.00 BAUER Fondations Spéciales S.A.S., Strasbourg, France EUR 100.00 BAUER Cimentaciones Y Equipos, S.A., Madrid, Spain EUR 100.00 TracMec Srl, Mordano, Italy EUR 100.00 BAUER Macchine Italia s.r.l., Mordano, Italy EUR 100.00 FAMBO Sweden AB, Eslöv, Sweden SEK 100.00 2010 FINANCIAL STATEMENTS CONSOLIDATED Pol-Bud Technologia Wody Sp.z.o.o., Lodz, Poland PLN 100.00 PESA ENGINEERING, S.A., Madrid, Spain EUR 100.00 Ground Remediation Systems Limited, Wigan, Great Britain GBP 100.00

C. Europe (other) BAUER Spezialtiefbau Schweiz AG, Baden, Switzerland CHF 100.00

FORALITH Holding AG, St. Gallen, Switzerland (subsidiary consolidated financial statements) CHF 85.00* FORALITH Drilling Support AG, St. Gallen, Switzerland CHF 100.00 FORALITH Equipment AG, St. Gallen, Switzerland CHF 100.00 FORALITH Bohrtechnik AG, St. Gallen, Switzerland CHF 100.00 OOO BAUER Maschinen - Kurgan, Kurgan, Russian Federation RUB 65.00 OOO BAUER Maschinen SPb, St. Petersburg, Russian Federation RUB 100.00 OOO BG-TOOLS-MSI, Ljuberzy, Russian Federation RUB 55.00 OOO BAUER Maschinen Russia, Moscow, Russian Federation RUB 100.00

D. Middle East & Central Asia Saudi BAUER Foundation Contractors Ltd., Jeddah, Saudi Arabia SAR 100.00

BAUER LEBANON FOUNDATION SPECIALISTS S.a.r.L., Beirut, Lebanon USD 100.00 BAUER International FZE, Dubai, United Arab Emirates AED 100.00 BAUER International Qatar LLC, Doha, Qatar QAR 49.00* BAUER Equipment Gulf FZE, Dubai, United Arab Emirates AED 100.00

* Commercial ownership is 100 percent 152 NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP

NAME AND REGISTERED OFFICE OF COMPANY Capital share Currency in %

D. Middle East & Central Asia (continued) BAUER Emirates Environment Technologies & Services LLC, Abu Dhabi, United Arab Emirates AED 49.00* BAUER Nimr LLC, Maskat - Maskat-Al-Mina, Sultanate of Oman OMR 70.00 BAUER Resources GmbH / Jordan Ltd. CO., Amman, Jordan (subsidiary consolidated financial statements) USD 100.00 Site Group for Services and Well Drilling Ltd. Co., Amman, Jordan USD 60.00 Site Group for Services and Well Drilling Ltd. Co., Ramallah, Palestine USD 100.00 Site Drilling Ltd. Co., Nicosia, Cyprus USD 100.00 BAUER Casings Makina Sanayi ve Ticaret Limited Sirketi, Ankara, Turkey TRY 60.00 BAUER Corporate Services Private Limited, Mumbai, India INR 100.00

E. Asia-Pacific, Far East & Australia BAUER (MALAYSIA) SDN. BHD., Petaling Jaya, Malaysia MYR 100.00 BAUER Foundations Australia Pty Ltd., Brisbane, Australia AUD 100.00 BAUER (NEW ZEALAND) LIMITED, Auckland, New Zealand NZD 100.00 BAUER Resources Australia Pty Limited, Sydney, Australia AUD 100.00 P.T. BAUER Pratama Indonesia, Jakarta, Indonesia IDR 100.00 BAUER Services Singapore Pte Ltd, Singapore EUR 100.00 BAUER Hong Kong Limited, Hong Kong, People's Republic of China HKD 100.00 BAUER Vietnam Ltd., Ho Chi Minh City, Vietnam VND 100.00 BAUER Foundations Philippines, Inc., Quezon City, Philippines PHP 100.00 BAUER Technologies Far East Pte. Ltd., Singapore (subsidiary consolidated financial statements) SGD 100.00 BAUER EQUIPMENT SOUTH ASIA PTE. LTD., Singapore SGD 100.00 BAUER Technologies Taiwan Ltd., Taipei, Taiwan TWD 99.88 BAUER Tianjin Technologies Co. Ltd., Tianjin, People's Republic of China CNY 100.00 BAUER Equipment Hong Kong Ltd., Hong Kong, People's Republic of China HKD 100.00 BAUER Equipment (Malaysia) Sdn. Bhd., Kuala Lumpur, Malaysia MYR 100.00 Shanghai BAUER Technologies Co. Ltd., Shanghai, People's Republic of China CNY 100.00 BAUER Equipment (Shanghai) Co. Ltd., Shanghai, People's Republic of China CNY 100.00 NIPPON BAUER Y.K., Tokyo, Japan JPY 100.00 Inner City (Thailand) Company Limited, Bangkok, Thailand THB 49.00* Thai BAUER Co. Ltd., Bangkok, Thailand THB 73.99

F. America COASTAL CAISSON CORP., Odessa, United States of America USD 100.00

BAUER FUNDACIONES PANAMÀ S.A., Panama City, Panama USD 100.00 BAUER MEXICO, S.A. DE C.V., Mexico City, Mexico MXP 100.00 BAUER Resources Canada Ltd., Edmonton, Canada CAD 100.00 BAUER Foundations Canada Inc., Calgary, Canada CAD 100.00 BAUER-Pileco Inc., Houston, United States of America USD 100.00 BAUER Manufacturing Inc., Conroe, United States of America USD 100.00 BAUER FOUNDATION CORP., Odessa, United States of America USD 100.00

* Commercial ownership is 100 percent NOTES TO THE 2010 CONSOLIDATED FINANCIAL STATEMENTS OF THE BAUER GROUP 153

NAME AND REGISTERED OFFICE OF COMPANY Capital share Currency in %

G. Africa BAUER EGYPT S.A.E. Specialised Foundation Contractors, Cairo, Egypt EGP 55.75

BAUER Technologies South Africa (PTY) Ltd., Cape Town, South Africa (subsidiary consolidated ZAR 100.00 financial statements)

MINERAL BULK SAMPLING NAMIBIA (PTY) LTD, Windhoek, Namibia NAD 100.00 MINERAL BULK SAMPLING SOUTH AFRICA (PTY) LTD, Cape Town, South Africa ZAR 100.00 BAUER RESOURCES GHANA LIMITED, Accra, Ghana GHS 100.00 2. Associated companies A. Germany Wöhr + Bauer GmbH, Munich, Germany (subsidiary consolidated financial statements) EUR 33.33 Wöhr + Bauer Angerhof GmbH & Co. KG, Munich, Germany EUR 100.00 Wöhr + Bauer Angerhof Verwaltungs GmbH, Munich, Germany EUR 100.00 WÖHR + BAUER PARKING GmbH, Ettlingen, Germany EUR 80.00

NDH Entsorgungsbetreibergesellschaft mbH, Bleicherode, Germany EUR 25.00 Grunau und Schröder Maschinentechnik GmbH, Drolshagen, Germany EUR 30.00 B. International TERRABAUER, S.L., Madrid, Spain EUR 30.00 NuBa Equipment Ltd., Edmonton, Canada CAD 50.00 Nuna Drilling F.A.L.C. Ltd., Edmonton, Canada CAD 25.00 2010 FINANCIAL STATEMENTS CONSOLIDATED 3. Enterprises in which the company has participating interests A. Germany TMG Tiefbaumaterial GmbH, Emmering, Germany EUR 33.33 Nordhäuser Bauprüfinstitut GmbH, Nordhausen, Germany EUR 20.00 Harz Hotel Grimmelallee Nordhausen Beteiligungsgesellschaft mbH, Nordhausen, Germany EUR 20.00 Harz Hotel Grimmelallee Nordhausen GmbH & Co. KG, Nordhausen, Germany EUR 20.00 Stadtmarketing Schrobenhausen e.G., Schrobenhausen, Germany EUR 6.90 B. International Open joint stock company Mostostroijindustria, Moscow, Russian Federation RUB 15.00 154

Declaration of the Management Board

ASSURANCE BY THE LEGAL REPRESENTATIVES

We hereby assure that, to the best of our knowledge, the consolidated financial statements give a true and fair view of the net assets, financial position and earnings of the company in accordance with the accounting principles applicable to fi- nancial reporting, and that the Group management report depicts the course of business, including the earnings and overall situation of the Group, in such a way that a true and fair view is conveyed and the material opportunities and risks of the foreseeable development of the Group are set out.

Schrobenhausen, March 31, 2011

The Management Board

Prof. Dipl.-Kfm. Thomas Bauer Dipl.-Betriebswirt (FH) Hartmut Beutler Dipl.-Ing. Heinz Kaltenecker Chairman of the Management Board 155

Auditors' Report

We have audited the consolidated financial statements prepared by BAUER Aktiengesellschaft, Schrobenhausen, com- prising the balance sheet, the income statement and statement of comprehensive income, statement of changes in equity, cash flow statement and the notes to the consolidated financial statements, together with the Group management report for the business year from January 1 to December 31, 2010. The preparation of the consolidated financial statements and the Group management report in accordance with the IFRS, as adopted by the EU, and the additional requirements of German commercial law pursuant to § (Article) 315a, Abs. (paragraph) 1 HGB ("Handelsgesetzbuch": German Commercial Code) are the responsibility of the parent company's Management Board. Our responsibility is to express an opinion on the consolidated financial statements and the Group management report, based on our audit.

We conducted our audit of the consolidated financial statements in accordance with § 317 HGB and the generally ac- cepted German standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated finan- cial statements in accordance with the applicable financial reporting framework and in the Group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consoli- dated financial statements and the Group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of the entities to be included in consolidation, the accounting and consolidation principles used and signifi- cant estimates made by the company's Management Board, as well as evaluating the overall presentation of the consoli- 2010 FINANCIAL STATEMENTS CONSOLIDATED dated financial statements and the Group management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the consolidated financial statements comply with the IFRS as adopted by the EU and the additional requirements of German commercial law pursuant to § 315a, Abs.1 HGB, and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The Group management report is consistent with the consolidated financial statements, and as a whole provides a suitable view of the Group's position, and suitably presents the opportunities and risks of future development.

Stuttgart, March 31, 2011

Udo Bäder ppa. Dagmar Liphardt Auditor Auditor 156

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PUBLISHED BY BAUER Aktiengesellschaft BAUER-Strasse 1 86529 Schrobenhausen, Germany

Office of the Management Board: Phone: +49 8252 97-1215 Fax: +49 8252 97-2900 e-mail: [email protected] www.bauer.de

REGISTERED PLACE OF BUSINESS 86529 Schrobenhausen, Germany Registered at the District Court of Ingolstadt under HRB 101375

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Construction Equipment Resources

BAUER Spezialtiefbau GmbH, the original The BAUER Maschinen Group is the world In the Resources segment, businesses parent company of the BAUER Group, has market leader in the development and man- which have grown up over a period of been a major driving force in the development ufacture of specialist foundation engineering years, or even decades, in the construction of specialist foundation engineering, and equipment. BAUER Maschinen GmbH – and equipment sectors have been consoli- carries out projects all over the world. Bauer the holding company for a number of sub- dated within a new organization, beneath Spezialtiefbau is organized on a regional sidiaries – designs and builds heavy-duty the umbrella of BAUER Resources GmbH. basis in Germany, and operates on all the drilling rigs, trench cutters, grab systems, The segment coordinates activities in the world's continents with over 50 subsidiaries vibrators and deep drilling rigs, as well as areas of water, the environment, energy and branch offices. Market trends have the related tooling, at its plants in Schroben - and mineral deposits. BAUER Resources meant that most of the company's revenues hausen, Aresing and Edelshausen. The GmbH is a holding company with its oper- are now generated outside of Germany. company also operates manufacturing facili- ating units spread across three divisions: Bauer has major subsidiaries and branch ties in the USA, Russia, China, Malaysia, Materials, Exploration and Mining Services, offices in the United Arab Emirates, Malaysia Italy, Singapore, Turkey and Sweden. It is and Environment. and Egypt among other locations, as well supplied with com ponents from within the as in the USA with its Coastal Caisson sub- BAUER Group by Schachtbau Nordhausen sidiary. Bauer Spezialtiefbau has built up and Olbersdorfer Guß. The BAUER Maschi- networks in numerous regions across the nen Group operates a global sales and world, enabling it to acquire and execute service network. GROUP KEY FIGURES: INCOME STATEMENT AND BALANCE SHEET GROUP KEY FIGURES: INCOME STATEMENT contracts both in the countries in which it is represented and in neighbouring countries, using its own machinery and in-house engi- neering consultancy. In addition to the pre- dominant field of specialist foundation engi- neering, Group companies SCHACHTBAU NORDHAUSEN GmbH, SPESA Spezialbau und Sanierung GmbH and Wöhr + Bauer GmbH also carry out general construction activities such as civil engineering, environ- mental engineering and project development. INCOME STATEMENT OF THE BAUER GROUP in EUR '000 2009 2010 Change SALES REVENUES 1,096,543 1,131,673 3.20 % Changes in inventories * 20,738 36,221 74.66 % Other capitalized goods and services for own account 71,128 30,349 -57.33 % Other income 37,632 57,357 52.42 % CONSOLIDATED REVENUES 1,226,041 1,255,600 2.41 % Cost of materials -642,008 -626,952 -2.35 % Staff costs -262,975 -282,506 7.43 % Depreciation and amortization of fixed assets -58,578 -64,914 10.82 % Write-downs of inventories due to use * -14,427 -12,248 -15.10 % Other operating expenses -163,690 -180,625 10.35 % OPERATING RESULT 84,363 88,355 4.73 % Financial income 2,329 4,071 74.80 % Financial expenses -30,730 -36,400 18.45 % Share of the profit or loss of associated companies accounted for using the equity method 3,541 1,436 -59.45 % PROFIT BEFORE TAX 59,503 57,462 -3.43 % Income tax expense -17,475 -17,673 1.13 % NET PROFIT OR LOSS 42,028 39,789 -5.33 %

BALANCE SHEET OF THE BAUER GROUP

ASSETS in EUR '000 31.12.2009 31.12.2010 Change NON-CURRENT ASSETS Intangible assets 21,839 23,261 6.51 % Property, plant and equipment and investment property 419,877 441,737 5.21 % Investments accounted for using the equity method 11,023 10,792 -2.10 % Participations 3,600 3,628 0.78 % Deferred tax assets 19,623 19,448 -0.89 % Receivables from concession arrangements --- 45,874 n/a Other non-current assets 9,953 8,756 -12.03 % Other non-current financial assets 31 108 248.39 % 485,946 553,604 13.92 % CURRENT ASSETS Inventories 366,675 420,417 14.66 % Receivables and other assets 285,764 329,109 15.17 % Effective income tax refund claims 9,723 7,006 -27.94 % Cash and cash equivalents 37,053 27,613 -25.48 % 699,215 784,145 12.15 % 1,185,161 1,337,749 12.87 %

EQUITY AND LIABILITIES in EUR '000 31.12.2009 31.12.2010 Change SHAREHOLDERS' EQUITY Group shares 374,702 412,618 10.12 % Minority interests 27,182 31,248 14.96 % 401,884 443,866 10.45 % NON-CURRENT LIABILITIES Defined benefit plans 44,783 47,380 5.80 % Financial liabilities 351,775 374,620 6.49 % Other liabilities 6,398 8,580 34.10 % Deferred tax liabilities 19,591 17,294 -11.73 % 422,547 447,874 5.99 % CURRENT LIABILITIES Financial liabilities 131,005 172,704 31.83 % Other liabilities 201,345 239,123 18.76 % Effective income tax obligations 9,462 14,508 53.33 % Provisions 18,918 19,674 4.00 % 360,730 446,009 23.64 % 1,185,161 1,337,749 12.87 %

* Previous year figures adjusted (for explanation see footnote on page 130) In the "Change" column, variations from the Group consolidated figures may occur as a result of rounding and differing presentation in EUR thousand and EUR million. Financial Calendar 2011

April 15, 2011 Publication of 2010 Annual Report Annual Press Conference Analysts' Conference

May 13, 2011 Interim Report to March 31, 2011

June 30, 2011 Annual General Meeting

August 12, 2011 Half-Year Interim Report to June 30, 2011

November 14, 2011 Interim Report to September 30, 2011 BAUER Aktiengesellschaft BAUER-Strasse 1 86529 Schrobenhausen, Germany www.bauer.de