Annual Report of the Fiscal Year 2005/2006 140 Years of Voith – Treading New Paths, Shaping the Future Locations and Organization Structure

Home , Voith

1 North America Production locations 16 Service and sales locations 20 Employees 5 304

2 Central and South America Production locations 4 Service and sales locations 11 1 Employees 3 103

3 Europe Production locations 60 Service and sales locations 96 Employees 23 093

4 Africa Service and sales locations 3 Employees 105

5 Asia, Australia, Oceania Production locations 12 Service and sales locations 37 Employees 2 480

Voith Paper

Head Organization Voith Paper Holding GmbH & Co. KG, Heidenheim/Germany

Divisions Fiber Systems Paper Machines Graphic Grades Paper Machines Board/Packaging Finishing Automation Rolls Fabrics 3

5 4

Holding Company

Voith AG Corporate Central Functions

Voith Siemens Hydro Voith Turbo Voith Industrial Services

Head Organization Head Organization Head Organization Voith Siemens Hydro Power Voith Turbo GmbH & Co. KG, Voith Industrial Services Generation GmbH & Co. KG, Heidenheim/Germany Holding GmbH, Heidenheim/Germany Heidenheim/Germany

Divisions Divisions Divisions Large Hydro Industry Facility Service Europe Small Hydro Road Facility Service Americas/Asia Automation Rail Process Service Aftermarket Business Marine The Voith Group in Figures*

2005/06 2004/05 2003/04 2002/03

EUR in millions

Orders Received 4 096 3 257 3 623 3 278 Export 3 255 2 483 2 814 2 295 in % 79 76 78 70 Sales 3 739 3 465 3 262 3 109 Export 2 839 2 614 2 228 2 353 in % 76 75 68 76 Total output 3 830 3 475 3 266 2 983 Total fixed assets 1 309 1 282 1 051 1 084 Capital expenditures 167 191 112 118 in % of Depreciation 142 171 97 103 Research and development expenditures 182 179 149 135 in % of Sales 4,9 5,2 4,6 4,4 Income before tax 330 162 148 124 in % of Sales 8,8 4,7 4,5 4,0 Net Income 246 97 92 82 in % of Sales 6,6 2,8 2,8 2,6 Total Cash flow -261 -136 273 243 in % of Sales -7,0 -3,9 8,4 7,8 Group capital 1) 742 729 523 465 in % of the Balance sheet total 21,0 19,1 16,0 16,5 Balance sheet total 3 535 3 821 3 272 2 814 Personnel expenses 1 418 1 223 1 144 1 145 Number of employees (without apprentices) 34 085 30 834 24 314 24 246

*) In light of this first-time adoption of IFRS, the figures for fiscal 2005/2006 and fiscal 2004/2005 are presented in compliance with IFRS throughout this entire annual report. However, since the figures for the two preceding fiscal years (2003/2004 and 2002/2003) are still presented in HGB-compliant format, it is possible to compare the numbers in all four periods only to a limited extent.

1) Equity and other non-current capital provided by shareholders. 140 Years of Voith... Original Wording of Sales Contract Between J.M. Voith and his son Friedrich: J. M. Voith in Heidenheim sells to his son Friedrich Voith the machines, tools and inventories listed in the attached document for the sum of fifteen thousand seven hundred and sixty one Guilders subject to the following conditions: 1. The listed objects are transferred to the buyer as seen. 2. The purchasing price is subject to an interest rate of 4% from 1 January 1867; interest has to be paid quarterly. 3. In order to secure the purchasing price and the interest, the seller shall be entitled at any time to insist on an equity pledge for the machines etc. associated with the buildings, and, as far as all other instruments and tools are concerned, to claim a pledge, in which case the present sales contract including attachments (sub II. 3 & 4) shall represent the document required in section 246 of the applicable security pledge law. This contract is authenticated: Heidenheim, 27 Jan./6 August 1867 The Seller J. M. Voith, The Buyer Fr. Voith It all started with paper. In 1869, Voith registered its first patent for a wood In 1873, the first Voith Francis turbine was a genuine milestone in hydro- grinder. Known as the “Raffineur” (refiner), the machine wrote technological power technology. Today, the turbine is on show at the Deutsches Museum history. The picture shows a wood grinder built in 1891. in Munich.

The beginning… saw the signing of contracts. The Heidenheim master locksmith Johann Matthäus Voith sells his business to his son Friedrich. The father signs the contract on 27 January 1867; with his signature on 6 August of the same year, the son finalizes the handover. This is the birth of Voith – an international company that is still family-owned today.

It can’t have been easy for the then 64-year-old Johann Matthäus to let go. He, a Swabian tinkerer and “man of action” par excellence, is to down tools? Enter retirement? After a life of hard work that was exclusively dedicated to the success of his company?

Throughout his life, he never regarded himself as a mere locksmith. As a passion ate technician, a “mechanicus”, he wants to design and build machines and

Milestones at Voith

1867 1869 1873 1881 1903 1922 Foundation of the 1st Voith patent 1st Voith Francis 1st Voith paper Niagara (at that Kaplan turbine present Voith Group (refiner) turbine machine time the world’s largest turbines) Voith supplied these 7000-hp Francis spiral turbines to Hamilton Cataract Power Light and Traction Co. Ltd. in 1903. Large orders like this one established Voith’s reputation worldwide. The young Hanns Voith is pictured (second from the right).

put his ideas and inventions into practice. As early as 1855, he applies for a travel subsidy from the King of Württemberg to visit the world exhibition in Paris. He is one of five hand-selected individuals that the King eventually sends to this forum of international industries. The investment will pay off for the country. Later.

Since 1864, father and son have been working jointly in the family business. This period marks the company’s first great successes. The “Raffineur” (refiner), a pioneering invention by the father, begins to conquer the paper industry. The future global player gathers momentum.

Yet this success is not without its problems. Sources talk about increasing disagreements between father and son as far as the future direction of the company is concerned. On the one hand, there is the father, conservative, cautious and anxious to preserve the fruits of his hard work.

1927 1929 1952 1952 1960 1961 Voith Schneider Voith turbo Voith Water Tractor Voith automatic Flow brake, 1st Voith Turbo Propeller transmission transmission flotation deinking variable speed (DIWA) process coupling Voith delivered its first complete paper machine to Raithelhuber, Bezner & Cie. in Gemmrigheim, Germany, as early as 1881. The company did not have to wait long for further orders. This picture, taken in 1905, shows a Voith paper machine bound for Zanders – a loyal Voith customer to this day.

On the other hand, there is the son, a hands-on character, bold enough to take entrepreneurial risks and keen to embrace the opportunities of a new era.

The company experiences the age-old conflict faced by family enterprises.

Eventually, the father sells the business: sources do not reveal whether this takes place on his own account or under gentle duress. He continues to live in the joint household and helps the young businessman whenever he can. With the new proprietor, a fresh wind blows in the company. Friedrich quickly modifies the place in line with his own ideas and plans. He is a gifted engineer and a brilliant entrepreneur – a rare combination at the time – but, as is still the case today, a guarantee for economic success.

1965 1968 1975 1978 1985 1995 1st turbo reversing Voith Retarder for High-power cardan Itaipu (largest hydro 1st Voith Vorecon Fish-friendly transmission for motor coach shaft for locomo- electric power station turbine shunting locomotives tives in the world) The first large diesel-hydraulic locomotive in the world to be fitted with a Voith transmission in 1935. Voith began building gear units in 1922, and soon developed the first hydrodynamic transmissions and couplings. This new line quickly became one of the company’s central pillars.

Ground-breaking inventions soon make the name Voith world famous. New business fields are opened up. Orders from all over the world and the first over- seas subsidiaries mark the start of internationalization. The sons of Friedrich Voith – Walther, Herrmann and Hanns – successfully continue their father’s work and lead Voith into the 20th century.

These are, in a few words, the beginnings of Voith. A great deal has changed since then. But one important thing has remained: Voith is still owned by the Hanns Voith family. The Voithians live the legacy that they inherited from the founder fathers: innovative spirit, a passion for engineering, a sense of responsibility, entrepreneurial courage, fairness, a down-to-earth approach and reliability.

This is the basis on which we build the future of Voith and keep the heritage of our founder fathers alive.

2002 2002 2003 2004 2005 2006 Aquatarder T 111, lowest Voith Cycloidal Curtain Coater Wavegen Paper Technology turbo transmis- Rudder Center sion for railcars

Annual Report of the Fiscal Year 2005/2006 140 Years of Voith – Treading New Paths, Shaping the Future 6

1 Introduction 2 Treading New Paths, 3 Reports of the Shaping the Future Group Divisions

10 A Word from the 20 Treading New Paths, 30 Voith Paper Board of Management Shaping the Future 34 Voith Siemens Hydro 14 The Board of Management Power Generation 16 The Supervisory Board 38 Voith Turbo 42 Voith Industrial Services

46 Markets

56 Employees 7

4 Management Report 5 Financial Report

62 I. Preamble: Consolidated 87 Consolidated Statement of 118 Notes to the Consolidated Financial Statements Income Balance Sheet comply with IFRS for the 88 Consolidated Balance Sheet 136 Notes to the Consolidated Cash first time 90 Statement of Changes Flow Statement 63 II. Business and Background in Equity 137 Notes to the Segment Report 65 III. Earnings, Financial and 92 Consolidated Cash Flow 142 Other Information Assets Position Statement 148 The Voith Group and its 72 IV. Research and Development 93 Notes to the Consolidated Shareholdings 73 V. Events after the balance Financial Statements sheet date 112 Notes to the Consolidated 156 Trade Fairs 2007 74 VI. Report on Risks and Oppor Statement of Income 158 Contact/Imprint tunities facing the Company 80 VII. Forecast Report

81 Corporate Governance Report 82 Report of the Supervisory Board 18 Introduction 9 Thinking and planning for the very long term – span ning generations – is intrin sic to the Voith business mo del. This focus shapes our strategies. And our success speaks for itself: In fiscal 2005/2006, all four of Voith‘s Group Divisions delivered further growth. New orders hit € 4.1 billion, the highest figure in the history of the Introduction

10 A Word from the Board of Management 14 The Board of Management 16 The Supervisory Board 10

The Fiscal Year 2005/2006

Trust is the bedrock upon which our business is built – the trust our customers place in us, the trust that has emerged over many years of fruitful partnership. Both we and our customers benefit from this trust. We are proud to say that our cooperation with some customers goes back over a century. Introduction | A Word from the Board of Management 11

Dear Reader,

In today’s vernacular, the locksmith’s shop that Friedrich Voith took over from his father Johann Matthäus on January 27, 1867, would be referred to as a typical startup: a small ideas factory staffed by 30 people and operating in one of the most forward-looking indus tries of its day. Led by a youthful entrepreneur with a mind full of ideas and the courage to try them out, the company took “the road less traveled” and seized the tremendous opportunities afforded by the spread of industrialization.

140 years of Voith

Today, 140 years on, the company is still owned by the Hanns Voith family. We have remained true to the paper and energy markets that made Voith a big company between 1870 and 1920. Gradually, we have also moved into the markets for mobility (since 1920) and industrial services (since 2000). In the process, the “startup” has thus grown to become a global business that employs more than 34 000 people at over 250 locations.

Our business was challenging and demanding from the word go. We have never been into mass-made products. The things we make are all tailored to the specific requirements of the individual customer. Some of them extend into mind-boggling dimensions. Since the days of Friedrich Voith, our commitment to our customers has never been restricted to attractive prices only. Fairness, reliability and innovation have always remained at the core of our dealings with customers. True to the tradition begun by our founding fathers, Johann Matthäus and Friedrich Voith, we have condensed our business principles and values into three simple statements:

• We apply innovations to help our customers consistently remain successful and competitive.

• We strive for long-term collaboration with our partners. Fast, short-lived deals are not in our interests.

• We never let our customers down. 12

Thinking and planning for the very long term – span ning generations – is intrinsic to the Voith business model. This focus shapes our strategies. And our success speaks for itself: In fiscal year 2005/2006, all four of Voith’s Group Divisions delivered further growth. New orders hit € 4.1 billion, the highest figure in the history of the company. Sales too rose to a new all-time high of € 3.7 billion. Net income reached an atypical peak of € 246 million, partly due to extraordinary income from financial commitments in previous years.

Treading new paths, shaping the future

The enormous growth and rapid development realized by our company in recent years are hard evidence that Voith has lost none of the entrepreneurial spirit and creative impetus that characterized its early years. Our actions are guided by a willingness to question received wisdom, to tread new paths, to take the initia tive, to flesh out new ideas, to adopt structures to the needs of the market, and thereby to shape the future in collaboration with our partners.

True to form, we once again launched a wide range of new initiatives in the fiscal year under review. One was the opening of the world’s most advanced paper research facility, the Voith Paper Technology

Dr. Hermut Kormann Dr. Hermann Jung Dr. Hans-Peter Sollinger Dr. Hubert Lienhard Introduction | A Word from the Board of Management 13

Center (PTC) in Heidenheim. Papermakers from around As varied as these projects are, they all have one thing the globe were in attendance when the center was in common: Each one is made possible only by the officially opened and went into service in May 2006. ideas, the knowledge and the motivation of our people. Since then, a number of them have worked together Our sincere thanks go to all our employees for their with Voith engineers and paper technicians to optimize hard work and dedication in fiscal year 2005/2006. their fiber mix, the composition of their paper and their Our customers and business partners are equally vital entire production process. to the success of our company. We thank you too for the trust you have placed in us. We are deeply grate In just 500 days, Voith Turbo developed and built the ful for the energetic support of our shareholders and world’s most powerful diesel-hydraulic locomotive, members of the Supervisory Board. Our sincere thanks presenting it to the public for the first time at Innotrans likewise go to the representatives of both the workforce in September 2006. With the global market for freight and management for their constructive collaboration. transport and logistics growing constantly, the Maxima gives Voith a foothold in attractive new segments of this At the same time, we extend a cordial welcome to all lucrative industry. the new employees from Hörmann Industrietechnik (Munich, Germany), VG Power (Västerås, Sweden), Looking further ahead, Voith Siemens Hydro Power AIR Fertigungstechnologie (Hohen Luckow, Germany), Generation’s plans to harness energy from the world’s IAP Technology (Gommern, Germany) and Valvex oceans will play an important part in solving the energy Ventiltechnik (Bergisch Gladbach, Germany) who have problems of tomorrow. Thanks to our Scottish sub now found a new home at Voith. sidiary Wavegen, we are well on the way to making the use of wave energy an economically viable proposition. We are currently experiencing an unprecedented wave of infrastructural development for many millions Voith Industrial Services too complemented the Pro of people and for key industries in the growth regions cess Service division’s portfolio of top-quality high-tech of the world. This trend is driving development in the industrial services by acquiring a majority stake in paper, energy, mobility and service markets in which Hörmann Industrietechnik. we operate. We have every intention of continuing to actively shape these markets in collaboration All these innovations and projects are only the tip of with our customers and business partners in future. the iceberg. Many other such initiatives are underway It would be our privilege and our pleasure to have throughout the Group. In the years and decades ahead, you on board as we do so. all of them will contribute to positive development and further solid growth at Voith.

Best regards The Board of Management of Voith AG

Peter Edelmann Martin Hennerici Bertram Staudenmaier Dr. Roland Münch 14 Introduction | Board of Management 15

*Zukunft

Board of Management of Voith AG

(f.l.t.r.)

Dr. Roland Münch Voith Paper

Bertram Staudenmaier Voith Paper

Dr. Hans-Peter Sollinger Voith Paper

Dr. Hermann Jung Finance & Controlling

Dr. Hermut Kormann President and CEO

Dr. Hubert Lienhard Voith Siemens Hydro

Peter Edelmann Voith Turbo

Martin Hennerici Voith Industrial Services 16

Supervisory Board of Voith AG

Dr. Michael Rogowski Rudolf Brandhuber* Chairman, Chairman of the works’ council of President of the Shareholders’ Voith Dienstleistungen, Committee of Voith, Heidenheim Heidenheim Thomas Brezina* Gerd Schaible* Member of the works’ council of Deputy Chairman, the common entity of companies of Chairman of the corporate Voith Paper Heidenheim, works’ council of Voith AG, Heidenheim Heidenheim Johann Gerressen* Dr. Manfred Bischoff Chairman of the general works’ Chairman of the Board EADS, council of DIW Indumont GmbH, Munich Wesseling Introduction | Supervisory Board 17

Prof. Dr. Bernd Gottschalk Dr. F. Oliver Porsche Andreas Strobel* President of the Association of the President and CEO of Familie 1st Representative of the Metalworkers’ German Automobile Industry (VDA), Porsche AG Beteiligungsgesellschaft, Union, Heidenheim branch, Frankfurt Salzburg/Austria Heidenheim

Florian Haupt* Ute Schurr* Angela Voith Legal adviser, Heidenheim Chairwoman of the general works’ Doctor, Herdecke council of companies of Voith Turbo Gottfried Heil* Heidenheim, Crailsheim, Garching Dr.-Ing. E. h. Jürgen Weber 2nd Representative of the Metal and Essen, Heidenheim Chairman of the Supervisory Board workers’ Union, Friedrichshafen of Deutsche Lufthansa AG, Cologne branch, Friedrichshafen Klemens Schweppenhäuser Member of the Board of Management Dr.-Ing. E. h. Heinrich Weiss of Familiengesellschaft J.M. Voith Chairman of the Board of Management GbR, Mannheim of SMS GmbH, Dusseldorf

*elected by the employees 18 2 Treading New Paths, Shaping the Future 19 The futuristic appearance of the Voith Paper Technol ogy Center is aptly sym bolic. Here, at the most advanced paper research facility in the world, the fu ture of papermaking has already begun. Voith’s new Paper Technology Center opens up tremendous opportunities to the papermak ing industry. For the first Treading New Paths, Shaping the Future 20

*Creativity Treading New Paths, Shaping the Future 21

*Ideas for the paper of tomorrow

The futuristic appearance of the Voith Paper Technology Center is aptly sym- bolic. Here, at the most advanced paper research facility in the world, the future of papermaking has already begun.

Voith’s new Paper Technology Center opens up tremendous opportunities to the papermaking industry. For the first time ever, the entire manufacturing process – from raw materials through machine configuration, automation and clothing to the finished product itself – can be tested and optimized under realistic operating conditions.

The center is helping paper producers from around the world to make a dream come true: The dream of holding tomorrow’s paper in their hands today. 22

*Vision Treading New Paths, Shaping the Future 23

*Energy harnessed from the oceans

Day and night, the waves break relent- lessly on the jagged shores of the island of Islay. Here, in the rough waters of the Atlantic off the west coast of Scotland, Voith Siemens Hydro is running the first (and at present only) power plant that generates power from ocean waves and feeds it into an existing electricity grid.

The Islay wave power plant is a forward- looking project if ever there was one. Vast reserves of energy lie untapped in the oceans of the world. Waves, tides and currents add up to potential “lunar energy” of over 1800 Gigawatts – more than the combined output of over 2000 large coal-fired power plants.

Voith Siemens Hydro is pulling out all the stops to develop new technologies that will harness the yet untapped power of the oceans and generate safe, emission-free energy in future. 24

*Power Treading New Paths, Shaping the Future 25

*Pure power for the world’s railways

It was a calm fall day when the Voith Maxima 40 CC pulled into the marshaling yard in Kiel, North Germany, for its first photo session. Only days later, the first- ever Voith-made locomotive caused quite a stir at InnoTrans 2006, the premier trade show for the railcar industry in Berlin.

Voith’s engineers got the Maxima rolling in just 500 days. The result is a giant, measuring 23 meters, weighing in at over 130 tons, and powered by a diesel-hydraulic engine that delivers nearly 5000 hp.

All of which makes this the most powerful single-engine diesel-hydraulic locomotive in the world. The Maxima 40 CC is no more than one would expect of Voith: a robust, reliable, maintenance-friendly locomotive with clear lines and an imposing design.

*Availability Treading New Paths, Shaping the Future 27

*Service strategies for key interfaces

At twelve stories tall, the stacking tower at the Opel plant in Eisenach, Germany, is a dizzying sight to behold. Two of these coachwork distribution centers can accommodate a total of 278 auto shells.

Unsprayed shells wait in the tower for sequential forwarding to the paint- shop, the next step in the production process. Freshly painted coachwork is likewise stored here until the time comes for final assembly.

Specialists from Voith Industrial Ser- vices look after the control systems that govern maintenance of the entire plant. They ensure that everything runs smoothly at the two stacking towers, guaranteeing almost 100% availability.

At such a key interface in the production process, this marks a tremendous feat of engineering and service performance. 28 3 Reports of the Group Divisions 29 Business with new machines rose in fiscal year 2005/2006. Two strategically important orders from Japan – one for a graphic grade paper machine, the other for key components of a LWC machine – deserve special mention. Orders for new board machines were received from Brazil and China. Large-scale rebuilds for North American and European cus- Reports of the Group Divisions

30 Voith Paper 34 Voith Siemens Hydro Power Generation 38 Voith Turbo 42 Voith Industrial Services

46 Markets

56 Employees 30

Voith Paper

Strengthened position in key markets

Growth in new machines business Robust rebuild business Excellent performance thanks to collaboration with customers Vigorous innovation in energy savings Reports of the Group Divisions | Voith Paper 31

Orders Received EUR in millions

02/03 1 672

03/04 1 882 04/05 1 399 € 1780 million 05/06 1 780 Orders Received

Sales* EUR in millions

02/03 1 601

03/04 1 749 04/05 1 658 € 1567 million 05/06 1 567 Sales

Employees as at September 30

2003 10 007

2004 9 938 Employees 2005 10 007 9977 2006 9 977

*see note page 62 32

Management Board of Voith Paper (from left):

Norbert Nettesheim Finance & Controlling Dr. Roland Münch Automation Thomas Koller Finishing Dr. Hans-Peter Sollinger Chairman Kurt Brandauer Paper Machines Graphic Grades Bertram Staudenmaier Fabrics/Rolls Dr. Lothar Pfalzer Fiber Systems Andreas Endters Rolls Rudolf Estermann Paper Machines Board/Packaging

A reliable, successful partner to the paper industry

Business with new machines rose in fiscal year Paper Rolls expanded its network by launching a new 2005/2006. Two strategically important orders from roll center in Chile. After a strong previous year, Japan – one for a graphic grade paper machine, the Voith Paper Fiber Systems experienced a phase of other for key components of a LWC machine – consolidation. deserve special mention. Orders for new board machines were also received from Brazil and China. Long-term partnerships fuel optimal performance Large-scale rebuilds for North American and European Long-term partnerships ensure that entire plants con- customers added the finishing touches to the year’s tinue to run consistently and efficiently. The optimization positive development. of PM 1 at Rhein Papier in Hürth, Germany, in fiscal year 2005/2006 is just one outstanding example of International presence on the rise this kind of close collaboration. For the first time, this The Voith Paper Finishing and Automation divisions machine broke through the psychologically important were in line with the upbeat market trend. Further- production speed barrier of 2000 meters per minute. more, Automation opened service centers in Australia, Another highlight, was the commissioning of PM 10 Portugal and Indonesia. Innovative products enabled at the Saica mill in El Burgo de Ebro, Spain. The Voith Paper Fabrics and Voith Paper Rolls to assert machine’s startup speed attracted global attention. their position in the face of stiff competition and, Voith Reports of the Group Divisions | Voith Paper 33

Peninsular PM 62, world-record speed by Holmen Paper AB in Madrid, Spain.

Focus on innovation to reduce energy requirements

The technique known as fiber loading allows between five percent, while the machine’s total energy con- six and ten percent of fiber to be replaced by fillers sumption is lowered considerably. without detracting from the physical properties of the resultant paper. This procedure cuts costs, for example Faster drying thanks to the Boost Dryer up to 25 percent less steam is needed during the dry- The Boost Dryer reached market-readiness in fiscal ing process. year 2005/2006. An initial installation will go into operation at a customer’s plant in 2007. The Boost SolarFlow cuts steam consumption Dryer delivers two-to-three times as much drying SolarFlow is an improvement on the proven Aqualis power as conventional drum-based drying methods. polyurethane roll cover for suction press rolls. Solar- Flow technology increases dry content out of the press Voith Paper Technology Center running at full speed section by one percent, thereby reducing steam The Paper Technology Center went into operation in consumption by over four percent. May 2006 and has been running at full capacity ever since. Numerous customers have completed trials Voith Drive: Higher efficiency, lower energy consumption here and it is already apparent that the PTC will The Voith Drive is a direct drive fitted straight onto trigger a fresh wave of innovation throughout the the roll pin. Since mechanical drive elements are not paper industry. needed, overall efficiency is improved by as much as 34

Voith Siemens Hydro

Demand for renewable energy generation drives hydro

Order intake jumps High profitability Wave energy gains momentum Reports of the Group Divisions | Voith Siemens Hydro Power Generation 35

Orders Received EUR in millions

02/03 591

03/04 683 04/05 624 € 721 million 05/06 721 Orders Received

Sales* EUR in millions

02/03 485

03/04 466 04/05 586 € 614 million 05/06 614 Sales

Employees as at September 30

2003 2 261

2004 2 261 2005 2 581 2 436 2006 2 436 Employees

*see note page 62 36

Management Board of Voith Siemens Hydro (from left):

Dr. Siegbert Etter Corporate Technology Dr. Hubert Lienhard Chairman Egon Krätschmer Finance & Controlling Jürgen Sehnbruch Marketing

Stimulus from Europe and South America fuels brisk business

Voith Siemens Hydro recorded a substantial year-on- by Voith Siemens Hydro. The US presented another year increase in orders received. Healthy business focus in modernization business with numerous com in Europe and – after a lengthy pause – a return to ponent deliveries, also comprising “aerating” runners positive impetus from South America were behind this that considerably enhance aquatic life of tailrace development. waters through their oxygen injecting effect. A remark- able award from Canada was through the contract Focus on pumped-storage plants for a new additional unit in Revelstoke, a hydro power European orders came in from Spain, Germany, Aus- plant on British Columbia’s Columbia River. tria and Portugal. As in the preceding years, many of these projects involved pumped-storage power plants. Market presence in Sweden Limberg II marked Voith Siemens Hydro’s second large The acquisition of Swedish company VG Power in July order from Austria in 24 months. The Group Division 2006 has provided Voith Siemens Hydro with high was also commissioned to rehabilitate the Waldeck I presence in the important Swedish market and thus pumped-storage power plant in Germany and equip a increased far-reaching presence in the whole of Scan- new-to-be-built powerhouse close to the existing plant. dinavia. VG Power specializes in rehabilitation and This added up to processing orders for three pumped- modernization of hydro generators as well as in service storage plants in Europe alone. Outside of Europe, and maintenance of all electrical equipment in hydro supplies for hydro power stations in Turkey, Peru, power plants. Mexico and two new plants in China were contracted Reports of the Group Divisions | Voith Siemens Hydro Power Generation 37

Hydro power plant Conowingo in Maryland/USA.

Initial successes in the forward-looking wave energy research and development activities. As a technology segment leader in this field, Voith Siemens Hydro has for many Integration of the Scottish subsidiary Wavegen ac years invested heavily to continually develop and quired in 2005 has now been successfully completed. improve its pumped-storage technologies. With a view Business in this forward-looking segment accordingly at coming projects, high attention was also given to began to roll in the period under review. Project activity large bulb turbines and their generators. Pelton turbine was highly promising, and letters of intent have been optimization was driven mainly within the context of signed for the construction of plants in Scotland, Spain, plant rehabilitation and higher performance. With Asia French Polynesia and Germany. EnBW AG of Ger- expected to boom in large machines, Francis turbine many and RWE’s UK-based npower have made signal R&D was done for very large machines with very high decisions by opting for OWC technology from Voith but also very low heads. Encountering silt erosion in Siemens Hydro for their first wave energy plants to be high-elevation alpine but also Himalayan plants is a built on the German North Sea and the English coast major capability of Voith Siemens Hydro through its respectively. patented soft and hard coatings. Solutions in this field can now also be provided through design concepts that Innovation reinforces full-line expertise see the protection of complete machines with the help As pumped-storage plants become increasingly impor- of ring gates. This concept draws specific attention tant to stability of electricity grids around the world, the in cases that cannot make use of shut-off valves for Group Division’s key focus was again on pump turbine reasons of unit size. 38

Voith Turbo

Relentless growth at Voith Turbo

Orders received and sales hit new peaks Demand for energy, raw materials and steel drives growth at Industry Division Positive development at Road Division Rail Division benefits from recovering railcar market Voith Turbo Marine gains momentum

Reports of the Group Divisions | Voith Turbo 39

Orders Received EUR in millions

02/03 683

03/04 738 04/05 823 € 931 million 05/06 931 Orders Received

Sales* EUR in millions

02/03 670

03/04 725 04/05 814 € 894 million 05/06 894 Sales

Employees as at September 30

2003 3 789

2004 3 793 2005 3 958 4 264 2006 4 264 Employees

*see note page 62 40

Management Board of Voith Turbo (from left):

Dr. Manfred Lerch Rail Division Matthias Lindemann Finance & Controlling Peter Edelmann Chairman Dr. Volker Zimmermann Road Division Dr. Jens-Erk Bartels Marine Division Dr. Jürgen Zeschky Industry Division

Strong demand for energy and mobility ever, more than 13000 transmissions and over 45000 drives fast business expansion retarders were sold in a single fiscal year.

Fiscal year 2005/2006 was a very good year for Voith Important orders in growth regions Turbo. Growth at this Group Division was once again A major order from Rotem (South Korea) for drive pack- very pronounced. ages enabled the Rail Division to strengthen its position as a systems provider. Other significant transactions An indispensable partner for infrastructure projects in the period under review include orders for final drives The Industry Division is reaping the benefits of world- from DLoco, a Chinese locomotive producer, and for wide efforts to improve infrastructure. Power plant pro delivery of couplers to the Dubai metro line. These jects in China and India, and the global boom in the oil orders set a pleasing precedent in the lucrative markets and gas industry fueled business with variable-speed of China and the Middle East. drives. Demand for turbo couplings was similarly buoyant in the mining industry, as was demand for universal Stimulus from new markets joint shafts and safety couplings for use in steel mills. The Marine Division won a number of orders for (tradi- tional) Voith Schneider Propeller applications, including Success on commercial vehicle markets worldwide a reference order for two Voith Water Tractors for the International projects were the mainstay of positive Shanghai Deep Water Port – the world’s largest con- development at the Road Division. Large orders for tainer terminal – which is currently nearing completion. retarders and DIWA automatic transmissions for city Orders received for Platform Supply Vessels (ships buses came in from China, India, Brazil, Russia, East- specially designed to supply offshore oil platforms) also ern Europe and Turkey, for example. For the first time consolidated the Division’s position in this market. Reports of the Group Divisions | Voith Turbo 41

Vorecon planetary gear with 30 MW power transmission capacity at the high performance test stand at Voith Turbo’s Crailsheim facilities, Germany.

Innovation New one 4 coupler head from Voith Turbo Scharfenberg cuts costs 30 megawatt Vorecon successfully tested The modular one 4 coupler head marks a radical step At the beginning of July 2006, the most powerful toward simplifying and standardizing conventional Vorecon variable-speed planetary gear was success- coupler heads. Maintenance times and service costs fully tested at the test stand in Crailsheim, Germany. can be slashed as a result. The new, multifunctional 6.3 MW test stand is also intensively used for the test runs of the new WinDrive New Voith Water Jet propulsion system for high-speed gear. The high dynamics of the plant allow to simulate shipping realistic wind profiles with load peaks of over 5 MW, The Voith Water Jet is a new propulsion system for which occur especially with wind gusts in offshore wind vessels in the 25 to 40 knots speed range. It is also parks. considerably more efficient and much quieter than conventional propellers. Construction of the first Voith Innovative axle model more economical to run Water Jets is slated to commence in 2007. The Road Division has extended and rounded off its portfolio of axles for buses and coaches. Most of the Voith Maxima 40 CC unveiled at Innotrans 2006 work in the period under review focused on the develop Voith has developed and built the most powerful diesel- ment of new rear axles and improvements to front- hydraulic locomotive in the world in just 500 days. All wheel suspension. Significant weight advantages were the key components – including the Turbo-Split trans- realized, and both rolling stability and vehicle handling mission, final drives, cooling system, vehicle control, were improved. universal joint shafts and highly flexible couplings – are built by Voith Turbo. 42

Voith Industrial Services

Fast pace of growth continues

Jump in new orders and sales at all three divisions Hörmann Industrietechnik rounds off Process Service portfolio Successful integration of Premier stimulates growth Reports of the Group Divisions | Voith Industrial Services 43

Orders Received EUR in millions

02/03 306

03/04 313 04/05 400 € 655 million 05/06 655 Orders Received

Sales* EUR in millions

02/03 306

03/04 315 04/05 396 € 655 million 05/06 655 Sales

Employees as at September 30

2003 7 660

2004 7 825 2005 13 737 16 858 2006 16 858 Employees

*see note page 62 44

Management Board of Voith Industrial Services (from left):

Dr. Norbert Klapper Division Facility Service Europe Harry Nieman Division Facility Service Americas/Asia Martin Hennerici Chairman Markus Glaser-Gallion Division Process Service Dr. Hubert Lachenmayer Finance & Controlling

Single-source service packages set standards worldwide

Both orders received and sales at Voith Industrial Hörmann Group strengthens Voith’s position in the auto Services were up sharply in fiscal year 2005/2006, motive industry maintaining the pattern of growth witnessed in the The acquisition of Hörmann Industrietechnik has rein- preceding years. All three divisions – Process Service, forced Voith Industrial Services’ position as a leading Facility Service Europe and Facility Service Americas/ provider of technical services to the global automotive Asia – posted substantial internal growth. First-time full- industry. The two groups have worked closely together year consolidation of the Premier Group and part-year for many years and deliver complementary service consolidation of Hörmann Industrietechnik (acquired offerings. A good example of this is the BMW Dynam- in January 2006) also proved crucial to the Group ics Center in Dingolfing, Germany. Complex ware Division’s positive trend. housing and conveyor systems are used to move more than 14 000 delivery note items at this logistics and distribution center every day. At this facility, Hörmann and Facility Service Europe share responsibility for managing all services relating to warehouse operations, as well as for end-to-end facility management and maintenance of conveyor systems in the warehouse. Reports of the Group Divisions | Voith Industrial Services 45

Measuring, leveling and assembling of foundation fixators for installation of processing centers at a car manufacturer.

Complex large orders in the USA High-tech services for the petroleum industry Premier too (now part of Facility Service Americas/ At the Process Service Division, one highlight in fiscal Asia) won a complex major automotive project from year 2005/2006 was an order to modernize Infraserv Global Engine Manufacturing Alliance, LLC (GEMA) Höchst’s ethylene compressor station at Shell’s Rhine- in the USA. A joint venture run by DaimlerChrysler, land Refinery. The contract covered all project man- Mitsubishi Motors and Hyundai, GEMA is one of the agement activities, engineering, procurement, produc- world’s leading engine manufacturers. As many as tion, assembly, training and commissioning. Punctual 840 000 car engines leave the plant in Dundee, Michi- completion of this work was essential to the smooth gan, every year. In the period under review, GEMA resumption of operations at the refinery, which effected commissioned Premier to service all its production one of the biggest shutdowns experienced in recent facilities and buildings. Premier’s many years of experi- years to permit modernization. About 200 employees of ence as a full-line service provider to the automotive Voith Industrial Services were involved in planning and industry clinched the award of a further large order too: executing this large-scale shutdown. Ford signed up Premier to handle extensive cleaning, maintenance and facility management assignments at three of its engine factories in the USA. 46

Markets

Paper Energy

A world without paper? Unthinkable. More than More than a third of the electricity generated with every third sheet of paper in the world is produced hydro power is produced with turbines and generators on a Voith paper machine. Voith Paper offers its made by Voith Siemens Hydro. Voith Turbo compo customers the entire papermaking process from one nents ensure energy supplies in power stations all single source. over the world. Markets 47

Mobility Service

Drive and braking systems from Voith ensure that The future belongs to integrated service concepts. people and goods reach their destinations quickly Voith Industrial Services is one of the leading and safely. In a wide range of industries, Voith suppliers in the area of industrial services: components operate in all places where energy from planning, engineering and assembly through has to be converted into controlled motion. to maintenance, technical cleaning and facility management.

Paper

Nothing works without paper. All of us encounter it in almost all areas of life, in a wide range of shapes.

Focus on:

Voith Paper Voith Turbo Voith Siemens Hydro

Voith Industrial Services Markets 49

Picture left: Nogent PM 1, corrugating medium and testliner production at Emin Leydier in Nogent-sur-Seine, France. Picture right: Voith employee weaving the seam during the production of the forming fabric.

Significant Events and Orders

November 2005 April 2006 · Major rebuild of PM 2 at Shinmoorim Paper in Jinju/Korea. · Complete production system for the manufacture of liquid packaging commissioned by Klabin in the Brazilian state of Paraná. December 2005 · Board machine BM 11 for Dongguan Sea Dragon Paper in May 2006 Dongguan/China. · The Voith Paper Technology Center is officially opened in · Paper machine for Shandong Sun Paper in Yanzhou/China. Heidenheim/Brenz in Germany. · Rebuilt of PM 51 at Holmen Paper in Norrkopping/Sweden. · Major rebuild of two paper machines at JSC Solikamskbumprom June 2006 in Solikamsk/Russia. · Complete production system for high-grade, wood-free papers for Daio Paper in Ehime/Japan. January 2006 · Full rebuild of the PM 7 at VPK Packaging Group’s Oudegem · Rebuild of two headboxes at Stora Enso in Fors/Sweden. site in Belgium. · Key components for the world’s largest glass mat plant at Johns Manville in Etowah/USA. July 2006 · Dr. Roland Münch appointed deputy member of the Board of February 2006 Management at Voith AG. · First Voith Boost Dryer to be installed at Klingele Papierwerke · Complete paper machine for Thai Paper in Khon Kaen/Thailand. in Weener/Germany. · SAICA’s PM 9 in Zaragoza/Spain sets a new speed record August 2006 of 1494 meters per minute for corrugated stock. · At 2010 meters per minute, the PM 1 at Rhein Papier in Hürth/Germany, is the first paper machine to break the 2000 meters per minute barrier. 50

Energy

The energy requirements of mankind are increasing day after day. We are working on new technologies, in order to ensure sustainable energy supplies.

Focus on:

Voith Paper

Voith Turbo Voith Siemens Hydro Voith Industrial Services Markets 51

Picture left: Stator assembly, Conowingo, Maryland/USA. Picture right: Wanapum hydro power plant, Washington/USA.

Significant Events and Orders

November 2005 May 2006 · Two Francis turbines, two generators and additional components · Four Francis turbines and generators modernized at the ordered by the Turkish-owned Kolin Construction, Tourism Mequinenza hydro power plant for Spanish energy utility Industry and Trading Company for the Akköy hydro power plant. Endesa.

December 2005 June 2006 · Four Kaplan turbines commissioned by the Chongqing Shipping · Two pump turbines for the Limberg II pumped-storage project Construction Development Company for the Caojie hydro power operated by Verbund-Austrian Hydro Power in the Austrian state plant in the Chinese province of Chongqing. of Salzburg. · Conceptual design and delivery of a pump turbine plus further equipment to the Waldeck I pumped-storage power plant on September 2006 Lake Eder/Germany on behalf of E.ON. · Four Francis turbines commissioned by Hrvatska Elektroprivreda for deployment at the Zakuçac hydro power plant in Croatia. February 2006 · Two generators ordered by Consórcio Empresarial Salto Pilão · Equipment ordered by DS˙I Devlet Su ˙Is¸leri Genel Müdürlügˇü for the Salto Pilão hydro power plant in Brazil. for the Turkish Akköprü hydro power plant, including two Francis · Three Francis units for the Jishixia power plant run by CPI turbines and two generators. Yellow Upstream Hydro Power Development in China. · Five 770 MW Francis turbines ordered by EDELCA March 2006 Electrificación del Caroní for the Guri II facility in Venezuela. · To develop and build the first wave power plant in Germany, the state of Lower Saxony and energy group EnBW rely on expertise and technologies from Voith Siemens Hydro Power Generation. 52

Mobility

Mobility has many facets. But the basis of mobility will always be the same: energy needs to be converted into motion and then transmitted.

Focus on:

Voith Paper

Voith Turbo Voith Siemens Hydro

Voith Industrial Services Markets 53

Picture left: Assembly of a geared variable-speed coupling. Picture right: Voith Water Tractor L.A. Fireboat 2 in Los Angeles, USA.

Significant Events and Orders

October 2005 · 87 cooling systems are delivered for high-speed trains run by · Four high-performance universal joint shafts for Betai Steel, British operator First Great Western. Benxi City/China. · Platform Supply Vessel for Østensjø shipyard/Norway. · 16 power packs for Polish automaker PESA. · First delivery of a total of 500 transmissions to EvoBus. · Order for 450 DIWA transmissions (for gas and diesel-driven vehicles) from Ankara Transport/Turkey. July 2006 · DLoco in China equips 240 electric freight locomotives with final November 2005 drives and transmission components. · 65 transmissions to Metrowagonmasch in Moscow/Russia. · The Aquatarder is ready for series-production with MAN D 20 and D 26 diesel engines. February 2006 · 36 universal joint shafts for Angang Iron & Steel Group August 2006 in Angang/China. · Four Voith Schneider Propellers for two Voith Water Tractors for · Major order for 520 safety couplings placed by Changchun Shanghai Deep Water Port in Shanghai/China. Railway, headquartered in Changchun/China. September 2006 April 2006 · The Voith Maxima® 40 CC – the most powerful diesel-hydraulic · Turbo transmissions for Vossloh Locomotives in Kiel/Germany, locomotive in the world – is unveiled. to be fitted in locomotives for French operator Colas. · Equipment for ten five-part railcars from Korean manufacturer Rotem, bound for use by the Syrian state railway company. May 2006 · Mobile Tiefbau Saugsysteme in Germersheim/Germany orders 62 Voith turbo couplings. 54

Service

Good service can be very easy. Experience and an eye for detail are sufficient to really understand the tasks and requirements of the customer and to transform them into intelligent service concepts.

Focus on:

Voith Paper Voith Turbo Voith Siemens Hydro Voith Industrial Services Markets 55

Picture left: Cleaning of critical areas, for example clean rooms, as shown here at a leading manufacturer of consumer goods packaging. Picture right: Process services for the chemical industry, for example in refineries as shown here.

Significant Events and Orders

October 2005 March 2006 · Production cells relocated from Germany to the USA on · Technical facility management services supplied to all four of behalf of Kuka Schweissanlagen in Augsburg/Germany. Motorola’s German sites. · Existing order extended to include infrastructure services at BMW in Dingolfing/Germany. April 2006 · Maintenance of the Rakow wind energy park in Germany on December 2005 behalf of Plambeck Neue Energien. · KME Europa Metal rolling mill repaired and maintained in Osnabrück/Germany. May 2006 · Rehabilitation of the ethylene compressor station of Infraserv January 2006 Hoechst, Germany, in the Shell Rhineland refinery. · Majority stake acquired in Hörmann Industrietechnik, based in Kirchseeon/Germany. July 2006 · Cleaning of plant and machinery for cement producer · Disassembly, reassembly and repairs commence for an asphalt Kronimus in Iffezheim/Germany. mixing plant owned by Deutag based in Linz/Rhine in Germany. · Power mobile equipment is used by General Motors in the company’s 75 production facilities in North America. August 2006 · Technical cleaning and mobile equipment management in two February 2006 Ford plants in Cleveland, Ohio/USA. · Further rotary kiln rehabilitation project for KHD Humboldt Wedag in Aberthaw/Wales. September 2006 · 24-hour data monitoring and coordination of 48 wind energy plants for Conergy Services in Germany. 56

Employees

Stronger position in competition for top people

Acquisitions swell work force

Voith one of the ten most popular employers for the best engineering graduates

Numerous initiatives to cultivate an interest in science and promote careers in engineering Employees 57

Employees as at September 30

2003 16 153 8 093 24 246

2004 15 992 8 322 24 314 2005 16 546 14 288 30 834 34 085 2006 16 677 17 408 34 085 Employees

Systems & Products Services

Employees by regions

Germany 7 356 8 133 15 489

Europe exclud- 3 192 4 412 7 604 ing Germany

Americas 3 890 4 517 8 407

Asia 2 063 346 2 409

Others 176 176

Systems & Products Services 34 085 58

Voith: an open, creative environ- Enterprise-wide initiatives to promote innovation Voith organizes seminars, workshops, congresses ment with excellent development and similar events around the world to systematically opportunities promote enterprise-wide knowledge networking and the pooling of creative ideas. To take just one of many Voith is one of the most popular employers for budding possible examples in fiscal year 2005/2006: Voith Paper engineers. This is the finding of an annual survey con- held six innovation workshops at which international ducted by Wirtschaftswoche, one of Germany’s leading participants from a variety of functions developed and business weeklies. Voith moved up 16 places in fiscal discussed new ideas with their colleagues. The result? year 2005/2006 and is now in the top 50. Among the More than 100 proposals, of which 17 are now being fol- year’s best graduates, Voith scored an excellent 10th lowed up in the context of focused preliminary studies. place. This outcome confirms the outstanding result achieved by Voith in the “Top Companies for Leaders” Getting school-age children excited about science study performed by human resources consultants Hewitt The number of schoolchildren who decide to study engi- Associates in 2005. In this study, executives and junior neering sciences is still too low. The Knowledge Factory managers at Europe’s 101 largest companies pointed project therefore aims to get youngsters excited about to Voith as one of the ten most attractive employers for science from an early age and to actively promote junior management talent. careers in engineering. More than 50 big-name German companies have now given their backing to this initiative. As a founder member of the Knowledge Factory, Voith advanced numerous projects in 2005/2006. Employees 59

The “Pupils’ Engineering Academy” (the German Outside Germany, too, Voith is committed to school acronym is SIA) gives schoolchildren with an interest and education programs in many countries. In Brazil, in technology the chance to see what it is like to work for example, it supports the “Formare” program that as a “real” engineer. For the second time, the SIA in specifically prepares schoolchildren in São Paulo for Heidenheim was awarded the “Initiative Prize for Train- working life at technology companies. ing and Development” in 2005. The prize is sponsored by the German Chamber of Industry and Commerce Fit for international project management and the Otto Wolff Foundation. Voith is a founder part- At Voith, project management is a demanding task and ner of this, Germany’s first SIA, and is playing a key a major responsibility, but one that is linked to attrac- role in ensuring that it gains a foothold as a successful tive internal development opportunities. The Voith Pro model at many schools throughout Germany. ject Management Institute prepares staff specifically to handle challenging assignments. Over the past 12 Another initiative launched by Voith under the aegis months, seminar blocks were held in São Paulo, Brazil, of the Knowledge Factory is entitled “Hey! How does and Liaoyang, China. Having completed this training, that work?” Voith supplies elementary schools with every participant is examined at the University of Gies- experiment sets that let teachers and pupils conduct sen in Germany. exciting scientific experiments. In response to excellent feedback from the schools in Baden-Württemberg and Berlin, Voith has decided to spread the project to other schools all over Germany. 60 4 Management Report 61 The global economy continued to expand during fiscal 2005/2006 (which began on Oc- tober 1, 2005). Neither oil price increases nor high commodity prices were able to do any lasting damage to the world‘s economy. Toward the end of the period under review, initial signs nevertheless indicated that US growth may be easing to some extent. In the growth regions of Management Report

62 I. Preamble: Consolidated Financial Statements comply with IFRS for the first time 63 II. Business and Background 65 III. Earnings, Financial and Assets Position 72 IV. Research and Development 73 V. Events after the balance sheet date 74 VI. Report on Risks and Opportunities facing the Company 80 VII. Forecast Report

81 Corporate Governance Report 82 Report of the Supervisory Board 62

Management Report of the Voith AG

I. Preamble: Consolidated Financial State- ments comply with IFRS for the first time

The consolidated financial statements for fiscal year explained in detail in these notes. To make it easier for 2005/2006 are the first that Voith AG has submitted the reader to compare this year’s figures with those pub- in compliance with International Financial Reporting lished in the previous period, a separate table reconcil- Standards (IFRS). The company has made intensive ing net income and shareholders’ equity as disclosed preparations for this transition over several accounting under HGB and IFRS has been added to the notes. periods, and has adapted its accounting system accordingly. Pursuant to Section 315a of the German Com- Note: In light of this first-time adoption of IFRS, mercial Code (HGB), the company has not produced the figures for fiscal year 2005/2006 and fiscal year HGB-compliant consolidated financial statements 2004/2005 are presented in compliance with IFRS or a HGB-compliant management report for the period throughout this annual report. However, since the under review. figures for the two preceding fiscal years (2003/2004 and 2002/2003) are still presented in HGB-compliant The Notes to the Consolidated Financial Statements format, it is possible to compare the numbers in all draw the reader’s attention to first-time adoption of four periods only to a limited extent. IFRS. Significant accounting and valuation policies are Management Report 63

II. Business and Background

A) The Voith Group’s Business Activities

The story of the Voith Group began in 1867, when Voith Turbo specializes in mechanical, hydrodynamic, master locksmith Johann Matthäus Voith handed his electrical and electronic drive and braking systems for craftsman’s business over to his son Friedrich. The road, rail, marine and industrial applications. small locksmith’s shop quickly grew to become one of the largest machine factories in southern Germany, Voith Siemens Hydro Power Generation is a joint focusing on paper technology products and water venture company that has combined the strength of two turbine construction. Today, 140 years on, the company leading hydro power component suppliers to create is still owned by the Voith family and operates world- a leading, full-line supplier for hydro power plants. wide in the paper, energy, mobility and service markets. The corporate Group is split into four Group Divisions: Voith Industrial Services is one of the leading providers Voith Paper, Voith Turbo, Voith Siemens Hydro Power of industrial services, covering everything from Generation and Voith Industrial Services. planning, engineering and assembly to servicing, technical cleaning and facility management. Voith Paper is a global process supplier to the paper industry. Its seven divisions develop technology solutions that span the entire papermaking process, from fiber to finished product. 64

B) Organization and control of the Voith Group C) Macroeconomic situation

The Voith Group is headed by Voith AG, which is Global economy in good shape headquatered in Heidenheim/Brenz in the eastern part of Baden-Württemberg in southern Germany. Voith AG The global economy continued to expand during fiscal acts as an operational management holding company. year 2005/2006 (which began on October 1, 2005). The Board of Management shapes and is responsible Neither oil price increases nor high commodity prices for the Group’s general business strategy. The holding were able to do any lasting damage to the world’s company is supported by corporate functions based economy. Toward the end of the period under review, at the same location in Heidenheim. The four Group initial signs nevertheless indicated that US growth may Divisions operate as independent profit centers and be easing to some extent. In the growth regions of are each managed by a head organization. These Asia – primarily China and India – and in Latin America four head organizations direct and control operating and Russia, the economy sustained its strong growth business in the Group Divisions. trajectory. During the fiscal year under review, hitherto weak domestic demand gradually became more In all its Group Divisions, Voith strives to achieve buoyant in the larger euro zone countries. In the sustainable, profitable growth. Corporate control course of the year, this trend spread to Germany too, is anchored in a value-based management philosophy reinforcing the country’s export-driven upswing. that uses the return on capital employed (ROCE) as the key measure of the company’s earnings power. Order surge in the German engineering sector Management ratios are calculated on the basis of earnings before tax and interest (EBIT). All figures and In fiscal year 2005/2006, the engineering sector once reports submitted to the Board of Management are again set the pace for the upswing in Germany. During based on these management ratios. the year, foreign demand was actually outflanked by growing domestic demand. Well-filled order books helped output to climb by 7 percent to a new record of € 158 billion after an already very good previous year. For the first time in many years, this positive development also created new jobs. Some 10000 new recruits swelled Germany’s core engineering work force to 874000 in the period under review. Management Report 65

Orders Received

02/03 2 966 312 3 278

03/04 3 303 320 3 623

04/05 2 846 411 3 257

05/06 3 432 664 4 096

Systems & Products Services EUR in millions

III. Earnings, Financial and Assets Position

Voith on course for solid growth: At Voith Paper, orders received were up 27.3% to € 1.8 billion (previous year: € 1.4 billion). There was no Order intake up in all Group Divisions consistent pattern across its seven divisions, however. After several upbeat years, Fiber Systems experienced In fiscal year 2005/2006, the Voith Group received a phase of consolidation. Both the Paper Machines new orders worth € 4.1 billion – an impressive 25.7% Divisions had a good year. Paper Machines Graphic gain on the previous year’s high figure of € 3.3 billion, Grades won two strategically important orders from and the highest volume ever recorded by the company. Japanese customers, one for delivery of a complete Alongside brisk business in all four Group Divisions, plant for high-grade, wood-free paper, and the other this leap was attributable primarily to first-time full-year for key components of an LWC paper machine. Paper consolidation of orders received by the Premier Group Machines Board/Packaging received major orders from (against only four months’ orders in the previous year), Brazil, China and North America. The order intake rose plus nine months’ worth of new orders at Hörmann sharply at Finishing and Automation too. Business Industrietechnik, a company in which Voith acquired development was also positive at Rolls and Fabrics, a majority stake in January 2006. Adjusted for these both of which operate in fiercely competitive, hard- effects, new orders rose 18.8%. fought markets.

Voith Turbo maintained the constant pattern of growth it has witnessed in recent years. New orders totaling € 931 million were 13.1% up on the previous year’s figure of € 823 million. Vigorous project activity in the gas, oil and steel industries, mainly in China, Russia, India and the Middle East, fueled a very positive trend at the Industry Division. The Road Division benefited from a buoyant mood on international commercial vehicle markets and broke new records for sales of its automatic transmissions and retarders. 66

Orders on Hand Orders Received by Division Orders Received by Region

02/03 2 736 Others 2% Voith Industrial Voith Paper 43% Germany 21% Services 16% 03/04 2 937 Asia 23%

04/05 2 580 Voith Siemens Europe excluding Hydro 18% Voith Turbo 23% Americas 28% Germany 26%

05/06 2 913

as at September 30 EUR in millions EUR 4 096 million EUR 4 096 million

While the Rail Division is still faced with a difficult Orders received by Voith Industrial Services surged market situation, its order intake too was up on the 63.5%, from € 400 million in the previous year to € 655 previous year’s level after a prolonged period of stag million. First-time full-year consolidation of new orders nation. Marine only began to make significant headway of the Premier Group (whose orders were recorded in the second half of the fiscal year. Even after such for only four months of the previous fiscal) played a a sluggish start, however, new orders were well ahead large part in this increase, as did nine months’ worth of the previous year’s level at fiscal year-end. of orders received by Hörmann Industrietechnik, which Voith acquired in January 2006. Adjusted for these Although the volume of orders placed worldwide effects, order growth stood at 6.6 %. All three divi dropped year on year, especially in the pivotal mar- sions – Process Service, Facility Service Europe and kets of China and India, Voith Siemens Hydro Power Facility Service Americas/Asia – contributed to this Generation still boosted its order intake by 15.4 % to high level of new orders. At Process Service (to which € 721 million (previous year: € 624 million). Powerful Hörmann now belongs), the bulk of orders came in stimuli came essentially from Europe and, for the first from the automotive, chemical and refinery industries. time after a protracted lull, from South America, too. Services provided by this division to wind energy Many of the orders signed in the period under review plants also achieved very pleasing growth. Through came from the first of these two regions. Toward the the entire reporting period, Facility Service Europe end of fiscal year 2005/2006, several delayed project consistently acquired significant new orders across all awards were finally awarded. This indicates a positive industries. Growth at Facility Service Americas/Asia short-to medium-term outlook in the important hydro was sustained, especially in North America and Mexico, power markets of China, Brazil and India. where Premier secured large maintenance and fleet management orders. Management Report 67

Sales Sales by Division Sales by Region

02/03 2 798 311 3 109 Others 3% Germany 24% Voith Industrial Voith Paper 42% 03/04 2 940 322 3 262 Services 18% Asia 22%

04/05 3 058 407 3 465 Voith Siemens Europe excluding Hydro 16% Voith Turbo 24% Americas 25% Germany 26% 05/06 3 075 664 3 739

Systems & Products Services EUR in millions EUR 3 739 million EUR 3 739 million

Sales

Solid ongoing sales growth throughout the Group Voith Turbo increased its sales sharply to € 894 million in fiscal year 2005/2006 (previous year: € 814 million). Consolidated sales increased 7.9 % to more than € 3.7 billion (previous year: € 3.5 billion). For the first Sales at Voith Siemens Hydro Power Generation time, this figure also includes the full-year consolidated climbed to € 614 million (previous year: € 586 million). sales of the Premier Group, plus sales netted by Hörmann Industrietechnik for the last nine months of The trend in sales at Voith Industrial Services was the fiscal year. Adjusted for these influences, Group heavily influenced by first-time full-year consolidation sales were level with the previous year. of the US American Premier Group (see above) and by first-time consolidation of Hörmann Industrietechnik As expected, sales at Voith Paper edged down from for part of the year. Accordingly, sales jumped to € 655 € 1.7 billion in the previous period to € 1.6 billion. million (previous year: € 396 million). Adjusted for these This slippage was due to the lower order intake in the effects, sales were up 7.9 %. preceding fiscal year as a whole. 68

Capacity Utilization

Capacity well used, productivity improved A steady, sizeable stream of new orders ensured that capacity utilization at Voith Siemens Hydro Power The focus of Voith’s long-term business strategy is on Generation was in line with the previous year. staying competitive in today’s global markets. Accord- ingly, every business process throughout the Group is Voith Industrial Services increased its personnel continually under review in order to sustainably increase capacity in line with sales growth in Mexico and Brazil. productivity. Capacity is consistently dimensioned with As in the preceding periods, temporary staff were the aim of adapting it flexibly and selectively to varying deployed to respond flexibly to fluctuations in capacity economic situations and to fluctuations in utilization. utilization in Germany in particular.

At Voith Paper, a plentiful supply of orders – especially at Paper Machines Graphic Grades and Paper Machines Board/Packaging – almost fully exhausted Net Income the potential for flexible personnel planning in the fiscal year under review. Fiber Systems, Finishing and Fabrics Net income reaches exceptional peak faced a deteriorating economic climate. In response, existing adjustment programs were intensified while The Voith Group further improved its earnings in fiscal new ones were initialized to varying degrees. At the year 2005/2006. Earnings before tax rose 104% to other divisions (Automation and Rolls), capacity utili € 330 million (previous year: € 162 million). zation remained stable. Net income before result attributable to providers of non- As in the previous year, capacity was well used at the current capital hit an exceptional high of € 246 million, Industry and Road Divisions of Voith Turbo. Whereas up from € 97 million in the previous year, in part due to the Rail Division had suffered a lull time in the preced- extraordinary income from the sale of financial investing period, capacity utilization rose to a positive level in ments. In particular, the sale of the Group’s interest in fiscal year 2005/2006 as the market revived. Capacity DIS AG, Düsseldorf, generated income that is stated in utilization declined at the Marine Division. the “other financial result”. Management Report 69

Net Income

02/03 82

03/04 92

04/05 97

05/06 246

EUR in millions

First-time consolidation of Hörmann Industrietechnik, Financial liabilities dropped 38.5% to € 622 million plus the fact that the figures for Premier Group com (previous year: € 1012 million), essentially because panies were included in Voith’s consolidated figures for the bond that expired in 2006 was repaid in full, while only four months in the previous period, were the main part of the bond due to expire in 2011 was repurchased reasons for the 16% increase in personnel expenses to prematurely and other outstanding loans were repaid € 1418 million (previous year: € 1223 million). Net (in the USA in particular). income was also affected by isolated steps to adjust capacity, which accounted for minus € 46 million At fiscal year-end, the Voith Group’s group capital (previous year: € 0) in non-recurring result. (defined as the sum of equity and other long-term capital resources made available by shareholders) stood at € 742 million (previous year: € 729 million). The group Solid assets and capital structure capital ratio increased from 19.1% in the previous year to 21%. Voith AG’s repurchase of its own stock by Upbeat business development shaped the Voith Group’s withdrawing ordinary shares was a key factor driving the assets and financial position in the period under review. upward trend in group capital. For more details, please At September 30, 2006, total assets were down 7.5 % refer to the notes to the consolidated financial state- to € 3535 million (previous year: € 3821 million). The ments. main reasons for this decline were changes in individual financial commitments and the repayment of debts. Cash flow remains positive Participating interests in associates were reduced to € 53 million (previous year: € 119 million), primarily due Net cash from operating activities came to € 232 million to the sale of the Group’s interest in DIS AG. The decline in fiscal year 2005/2006 (previous year: € 194 million). in marketable securities to € 141 million (previous year: The year-on-year increase is attributable to brisk busi- € 272 million) is attributable essentially to the disposal ness in the period under review. The overall cash flow of of special funds and to the changes in part of the bond minus € 261 million (previous year: minus € 136 million) portfolio. was influenced primarily by the changes in the Group’s assets and capital structure explained above. 70

Investments and Depreciation

118 02/03 115

112 03/04 116

191 04/05 112

167 05/06 118

Investments Depreciation EUR in millions

Capital Expenditure Financial Investments and Participating Interests Capital expenditure totaled € 167 million in fiscal year 2005/2006 (previous year: € 191 million). Besides the Corporate development stepped up scheduled modernization of equipment and production plants, much of this money was used to further enhance In line with the Group’s long-term growth strategy, the Group’s innovative edge. Capital spending account- a number of acquisitions and business startups were ed for 4.5% of consolidated sales in the period under effected in fiscal year 2005/2006. At the same time, review, down from 5.5% a year earlier. existing operations were restructured and, in some cases, sold. In the fiscal year under review, Voith Paper raised its stake in Voith IHI Paper Technology Co., Ltd. – a joint venture owned by Voith Paper and the Japanese technology group IHI – from 30 % to 49 %. Voith IHI Paper Technology is a leading supplier of paper machine technology to the Japanese and wider Asian market. In fiscal year 2005/2006, this company was instrumental in winning a key order for a complete production plant from Japan’s biggest papermaker.

Also in 2006, the Industry Division of Voith Turbo acquired Valvex Ventiltechnik GmbH, Bergisch Glad- bach, Germany. Valvex specializes in developing and producing explosion-proof solenoid valves for use in the mining and refrigeration industries. Its product range ideally complements Voith Turbo’s existing portfolio. Under the terms of the takeover, Valvex will be fully integrated in the Industry Division. Following this acquisition, the new company was merged with Voith Turbo GmbH & Co. KG, Heidenheim.

At the 2006 IAA Commercial Vehicles show in Hanover, the Road Division announced that IAP Technology GmbH was to be merged with newly launched Voith Management Report 71

Turbo Aufladungssysteme GmbH & Co. KG, based in Munich), Germany, in 2006. Hörmann is well estab- Gommern, Saxony-Anhalt, Germany. Effective Octo- lished as an expert provider of complex technical in- ber 1, 2006, this move pooled Voith Turbo’s and IAP dustry services, especially for the automotive industry. Technology’s activities in the field of turbochargers The company employs 1800 people in nine countries. for combustion engines. The merged company plans In assuming control of Hörmann’s business activities, to launch volume production of exhaust gas turbo- Voith Industrial Services has taken a significant step chargers for the commercial vehicle industry in 2008. toward its goal of providing full-line service programs to selected industries. For its Marine Division, Voith Turbo also acquired a stake in AIR Fertigung-Technologie GmbH & Co. KG, In addition to these acquisitions, Voith also launched based near Rostock, Germany, in the period under a series of new companies in the period under re- review. AIR focuses primarily on manufacturing marine view. Most of these were national sales companies, propeller screws made of composite materials and established for Voith Turbo and Voith Siemens Hydro suitable for smaller vessels. Collaboration with the new in Mexico, Peru, Taiwan and Ukraine. subsidiary will, in future, enable Voith Turbo Marine to penetrate the market for inland vessels. In the fiscal year under review, Voith disposed of two major participating interests. In January 2006, it sold In 2006, Voith Siemens Hydro Power Generation Heidenheimer Giesserei GmbH & Co., Heidenheim/ bought a majority interest in VG Power AB, Västerås, Germany, a non-consolidated company originally Sweden, thereby enlarging its presence on the Scan- acquired in the context of insolvency proceedings. dinavian market. VG Power’s business focus on hydro In February 2006, in relation to a public bid for the generator rehabilitation widens Voith Siemens Hydro’s Swiss Adecco Group, Voith sold its 29.5% stake in expertise in this field. This acquisition further enhances DIS Deutscher Industrie Service AG, Ulm, Germany, to the Group Division’s portfolio in terms of both content a well-known, publicly traded company that operates and geographic coverage. in the temporary manpower market.

DIW Deutsche Industriewartung AG, a subsidiary of Voith Industrial Services, acquired a majority stake in Hörmann Industrietechnik GmbH, Kirchseeon (near 72

Research and Development

02/03 135

03/04 149

04/05 179

05/06 182

EUR in millions

IV. Research and Development

R&D spending still among the highest in the industry realize substantial savings. At the Paper Machines Board/Packaging Division, the new Boost Dryer process Research and development expenditure of € 182 million successfully completed its trial phase. A test installation in fiscal 2005/2006 remained close to the high level will go into operation at a customer’s plant in 2007. recorded in the previous year (€ 179 million). This figure In collaboration with the Fraunhofer Institute, Voith Paper is equivalent to 4.9% of sales. Rolls continued development of its Virtual Reference Grinding technology (to grind tissue rolls), which began One outstanding event in the company’s calendar was in the previous year. The technology is now ready the official opening of the Paper Technology Center for volume roll-out. Also in the period under review, (PTC) in Heidenheim, Germany, in May 2006. For the numerous new roll cover and roll coating products were first time, the new research center allows customers successfully launched. One example is the SolarFlow, to perform tests at any point in the entire papermaking an innovative coating for suction press rolls. Voith Paper process under realistic conditions. Together with its Fabrics developed PrintTech PR, a new dryer fabric collaboration partners at the PTC – BASF, Siemens, technology for single-tier dryer groups, which boasts Omya and Cargill – Voith is exploring issues such superior performance and maintains a consistently high as how chemical additives influence paper production. level of efficiency. The center has been running at full speed ever since it opened. Feedback from customers who have already At the Industry Division of Voith Turbo a prototype of run tests at the PTC has been thoroughly positive. the WinDrive, a variable-speed planetary drive for wind energy plants, was designed and built in the period under The various divisions of Voith Paper initialized a number review. Other R&D activities included development of of new innovation projects while bringing others to mar- a tunnel version of the TPKL turbocoupling, full electric ket-readiness in the fiscal year under review. At all seven drives for use as alternatives to hydraulic drives, and divisions, the one common theme was saving energy at a new technique (TVM) for measuring torsional vibra- every stage in the papermaking process. After extensive tion. The Road Division concentrated on developing testing, Fiber Systems now has its fiber loading process a new independent rear driven axle and a hydraulic ready for market launch. This revolutionary technology dual-weighted flywheel, as well as on further improving uses chemical processes to replace between 6 and 10% its aquatarder. One focal point at the Rail Division was of fiber with less expensive fillers. Papermakers can thus development and production of all drive components Management Report 73

V. Events after the balance sheet date and indeed the entire system for the Maxima, the world’s In November 2006, Voith AG sold its 25.1% stake in most powerful diesel-hydraulic locomotive. Work also Grundstücks- und Baugesellschaft AG Heidenheim progressed on the Ecopac, a concept study for a new to the GAGFAH real estate group. More details of drive system that features a total of seven innovations. this transaction are provided in the notes to the con Voith Turbo Scharfenberg unveiled the modular One 4 solidated financial statements. coupler head, which can sharply reduce operating costs. Voith Turbo Marine developed the new Voith Water Jet Apart from this transaction, no significant events have propulsion system for high-speed ships. occurred since the end of fiscal year 2005/2006.

The development of pump turbines constituted a focus in Voith Siemens Hydro’s R&D activities. As a technology leader in this field, the company has invested contin uously over years in its pumped-storage technologies. Another focus of R&D was on large bulb turbines and bulb generators and the optimization of Pelton turbines for higher efficiencies and performance in rehabilitation projects. With Asia expected to boom in large machines, R&D was driven also for large Francis machines with very high but also very low heads. Above existing and patented soft and hard coatings against silt erosion in hydraulic machinery Voith Siemens Hydro has developed design concepts for protection as well, the so-called ring gates. These are applied in cases of risk of wear in rivers from the Himalayan Mountains, where for reasons of size, no shut-off valve can be installed any more. 74

VI. Report on Risks and Opportunities facing the Company

A) Risks Risks to the Voith Group

Risk and quality management External risks Macroeconomic risks

The Voith Group operates a distributed risk manage- Defying record oil prices, the global economy con- ment system. Essentially, responsibility for risk manage tinued to expand in fiscal year 2005/2006, albeit at a ment is assigned in line with individual risk profiles slightly more moderate pace. The surprisingly modest on all levels and in all functions, irrespective of value impact of the trend in oil prices is attributed to notice- thresholds. Like the risk management system, the Voith ably more restrained consumption patterns, plentiful quality management system covers every aspect of the foreign exchange reserves on the whole, and the fact Group and is gradually being integrated in a com- that interest rates around the world reached historic prehensive Technical Risk and Quality Management lows. The Chinese economy again proved keenly System. resistant to external influences. Upbeat economic and corporate data left other global markets in good shape Voith continually monitors macroeconomic develop- too. ments, trends in the industry and internal processes that can impact the Group’s situation. A defined risk In this context, and with global trade still plotting catalogue helps management to detect specific risks. a stable growth chart, the industry’s sales prospects A distinction is drawn between two classes of risks: remain bright. risks to the Group and risks to performance. These classes break down as follows. Industry-specific risks

All the industries served by Voith in the paper, energy, mobility and service markets have been experiencing very vigorous growth for a protracted period. The main driver of this trend is the unprecedented development of global infrastructure, principally in the growth regions of Asia, but also in Russia and Latin America. Wherever there is a need to develop or expand industrial infrastructure in the form of paper mills, hydro power, coal-fired and gas-fired power plants, refineries, steel mills, mining operations, oil fields, chemical industries, local public transport systems and freight transportation networks, there is corresponding demand for plants, components and systems from Voith. This sustained upswing is being further reinforced by a global trend for companies to concentrate on their own core business while outsourcing non-core activities to external service providers. Management Report 75

At present, there is no sign of an end to the buoyant Financial risks business activity in Voith’s target industries. In all four growth markets – paper, energy, mobility and service The Group’s financial structure is designed to – the Voith Group is excellently placed and occupies safeguard long-term stability. At the start of fiscal leading positions. It follows that the Group should 2005/2006, available liquidity was used to repay the benefit commensurately from continuing healthy growth bulk of the bond that matured in September 2006. The in these industries. Group is able to finance its investments in ongoing growth out of current positive cash flow. Voith also has There is no evidence of perceivable, significant indus- access to adequate credit lines. In 2006, the Moody’s try-specific risks to the Group. Investors Service rating agency once again confirmed Voith AG’s positive Baa1 rating and “stable outlook”.

Management risks Risks relating to shifts in exchange rates – especially between the Euro and the US Dollar – can signifi- Voith operates a reliable reporting system that also en- cantly impact the deliveries and services provided by compasses its risk and quality management systems. individual Group companies. Voith’s global footprint Corporate Accounting plays a pivotal role in this nevertheless enables it to largely balance out any such system. In fiscal year 2005/2006, the transition from effects. All currency risks in respect of third parties are Group accounting based on the German Commer- hedged individually. cial Code (HGB) to International Financial Reporting Standards (IFRS) posed a stiff challenge to Corporate Suitable instruments are used to hedge interest and Accounting – a challenge mastered very impressively payment risks to the greatest extent possible. The by this unit. Group Divisions take out appropriate contingency insurance in particular to hedge risks arising from A comprehensive system of corporate planning and default or protracted delays in the payment of trade financial analysis aligns and coordinates the targets receivables. The Group has sufficient reserves and metrics defined for subsidiary companies with to cover any additional operating risks. those of the Group Divisions and the Group as a whole and monitors them consistently. No particular financial risks are perceivable at the present time. For more information, please refer to the No risks of material Group management errors are notes to the consolidated financial statements. perceivable at the present time. 76

Infrastructure risks Environmental protection risks

IT risks All production processes in the Voith Group satisfy strict corporate guidelines on quality, risk management and Voith operates its own IT company, Voith IT Solutions environmental protection. An integrated environment GmbH, which consistently and reliably handles the management system monitors permanent compliance Group’s data at its own dedicated data center. The with these guidelines and ensures that both production experts at Voith IT Solutions manage the whole IT and products consistently meet the same high quality infrastructure for the entire Group and also maintain and environmental standards. the specific application systems used by each Group Division. They ensure that the hardware deployed In 2005, corporate guidelines on industrial safety is always in line with the state of the art. If problems were added to the existing body of guidelines. These arise, they guarantee that normal operation is swiftly guidelines are binding for all Voith sites and lay resumed. the foundation for harmonized protective/industrial safety standards worldwide. To verify observance of safety guidelines at the workplace, managers Human resources risks began to conduct reciprocal safety audits in 2006, initially at Voith Paper in Heidenheim. Voith faces fierce international competition from other companies for the services of its specialists and No particular risks relating to the Group’s infrastructure managers. The Group’s broad array of worldwide are perceivable at the present time. activities involving schools, universities and a variety of programs, initiatives and organizations nevertheless combine with its strong global orientation to make Voith an attractive employer. In a study conducted in 2005, Voith won international accolades for its strategic orientation in the area of leadership processes.

Training and development programs, a family-friendly human resources policy and flexible work times keep Voith employees highly motivated at their place of work – a fact substantiated by the traditionally very low employee fluctuation rate at Voith. Management Report 77

Risks to performance

Contractual risks Capacity utilization risks

Regular checks ensure that adequate provisions are Most products made by Voith are one-off items that set aside to cover the various legal risks that exist pass through each phase of production – from design throughout the Group. In particular, these include risks to shipment – in accordance with unique order specifi- relating to warranties, liability, contractual penalties, cations. This fact can temporarily lead either to under guarantees, and the possibility of inadequate or utilization of capacity or to bottlenecks in the various incorrect price calculations. stages of development. While exploiting the full flexibility of its capacity utilization system wherever Appropriate additional provisions are made for special possible, Voith also continually and swiftly aligns risks arising from existing contracts, insofar as said its global capacity with long-term sales expectations risks can be reliably quantified. calculated on the basis of model scenarios.

Adequate insurance cover protects the Group against Technical risks outages or interruptions to critical production pro cesses. Within certain tolerances, fluctuations in Innovation-related risks capaity utilization can be absorbed by flexible work time models within the framework of regional Voith is one of the most innovative players in its conditions. industry. To ensure that customers can continue to rely on Voith as a solid partner in future, the Group invests large sums of money every year to further improve Sourcing risks and refine existing technologies, and to research and develop new products and systems. Global patent Persistent strong demand for commodities has fueled strategies protect the Group’s leading technology a sustained shortage of raw materials on the world’s position. markets. Given the substantial proportion of purchased components needed by the individual Group Divisions, Voith actively uses every means at its disposal to contain cost increases.

To the best of our knowledge, no significant technical risks exist at the present time.

Overall risk

To the best of our knowledge at the time this report went to press, there is no material threat to the con tinued existence of the Voith Group. 78

B) Opportunities

Macroeconomic opportunities Strategic opportunities

Voith ranks as a leading provider in the markets for Global orientation paper, energy, mobility and service. In the present climate, the world’s emerging economies and growth At Voith AG, internationalization is a long-standing regions (such as India, China and Russia, but also Latin tradition that began when the company built its own America) are making a concerted effort to build urgently plant at St. Pölten, Austria, more than 100 years ago. needed infrastructure that will facilitate the further Today, Voith has in-house production facilities and sales development of their economies. Voith supplies virtually centers in over 40 countries in all regions of the world. everything that is needed for this development process: Dynamic business development in emerging markets is paper machines, hydro power plants, products and of special importance to its current growth pattern. This systems for local public bus and rail transport, products global orientation enables Voith to participate in these for use in power plants, steel factories and in the extrac- developments with its own capacity on the ground. At tion of raw materials, and technical services for new the same time, it keeps the company from becoming too factories and industries. In the years ahead, worldwide dependent on particular regional and national markets. infrastructure development will lend further momentum to the paper, energy, mobility and service markets. Diversification and acquisitions

Voith operates in three Group Divisions that concern themselves with the production of capital goods: Voith Paper, Voith Turbo and Voith Siemens Hydro. These three corporate Divisions are independent of one another. Each has sufficient room to expand into new components, systems and related services. Organic growth in these Group Divisions is flanked by the selec- tive acquisition of companies that usefully complement existing product ranges.

To diversify into new areas of business, the Group has also set up the Voith Industrial Services Group Division, whose service activities are independent of specific products and are less capital-intensive. In recent years, Management Report 79

growth in this Group Division has been fueled largely Long-term corporate development to defend independence by acquisitions. One was the takeover of DIW Deutsche Industriewartung AG in 2000. Another was the pur- Voith is a family-owned business whose shareholders chase of the US American Premier Group in fiscal year are committed to the well-being of the company. In its 2004/2005, followed by acquisition of a majority interest capacity as an unlisted stock corporation, the Group in Hörmann Industrietechnik in the fiscal year under draws on its own earnings power to reinforce its equity review. structure. Thanks to a moderate dividend policy, Voith has sufficient financial resources to fuel continuous, Under the aegis of Voith AG, these four Group Divisions attractive growth – and to remain independent as a keep the Group from becoming too dependent on any family-owned enterprise. A Group Capital ratio of 21% one target industry. Equally, they create the opportunity at September 30, 2006, and solid corporate finances to tap synergies by networking their innovative capa leave the Voith Group well placed to continue its bilities, expertise and a variety of services. successful growth trajectory in future.

Since Voith does not have to worry about share price- Promoting innovation driven considerations, it has earned an excellent standing on the institutional investment market. In the past, In increasingly saturated and fiercely competitive mar- this privileged position has been used to place bonds kets, innovation plays a crucial role. Voith has cultivated and engage in private placements. As the need arises, an innovation-friendly climate – and has repeatedly the same can be done again in future. developed ground-breaking products – ever since its inception. To this day, top priority is still given to innovation. The Group’s policy is to drive technological progress in manageable stages so that mature, reliable solutions can be offered on the basis of exhaustive analysis and testing. This policy demands a strong focus on practical solutions – as exemplified by the Voith Paper Technology Center, the most advanced paper research facility in the world, which opened during the fiscal year under review. The acquisition in 2005 of Wavegen, the Scottish-based global leader in wave energy systems, is only one of many more examples that testify to the Group’s long-term innovation strategy to enriching its portfolio and stabilizing its sustainable growth prospects. 80

VII. Forecast Report

Global economy in a healthy state Continued positive development at Voith

In the fall of 2006, the world’s economy is sustaining its At Voith, all the signs point to further business expan- long-standing pattern of growth. Up to now, neither the sion in fiscal year 2006/2007. As foreign demand price of oil nor high commodity prices have been able continues to grow and the domestic economy recovers to do lasting damage to the global economy. Even as further, the positive business development experienced growth in the USA shows signs of slowing, new centers in the previous period should be sustained this fiscal of growth – especially in Asia – are gathering speed year. The Group expects to see both orders received and taking up the slack. Despite the Chinese govern- and sales top the € 4 billion mark. ment’s steps to rein in the economy, GDP in the Middle Kingdom is still growing by more than 10 % per annum. Voith Paper, which started fiscal year 2006/2007 with Having woken from its slumber, the euro zone too is a substantial influx of orders, expects a sharp jump in gaining more and more impetus from domestic demand. sales. Anticipated growth in the volume of rebuild and This trend has also been apparent in Germany, whose replacement business suggests that new orders will economy firmed up still further over the past year. remain high.

A number of uncertainties nevertheless threaten global Voith Turbo looks set to maintain positive business economic development. It is hard to predict the direc- development through fiscal year 2006/2007, although tion that commodity markets will take. There are also the very fast pace of growth experienced at times over political uncertainties surrounding developments in the the past twelve months may ease slightly. Middle East. In Germany, the impact of the increase in value-added tax with effect from January 1, 2007, Full order books indicate that Voith Siemens Hydro remains to be seen. However, given the generally Power Generation too can look forward to fresh sales healthy state of the economy, growth is not expected growth. Additional stimulus will also come from the to slump as a result of this change. reviving markets of Brazil and China, where new orders are expected to increase in fiscal year 2006/2007.

The solid order intake at Voith Industrial Services should continue through the current fiscal year. Business at the Process Service division should increase sharply follow ing the recent acquisition of Hörmann Industrietechnik. Both this combination and international collaboration with the Premier Group open up further lucrative opportunities and stimulus for the entire Group Division. Management Report 81

Corporate Governance Report

Many of the world markets on which Voith operates are On September 18 and October 6, 2006 respectively, experiencing severe price pressure that is causing earn- the Board of Management and the Supervisory ings quality to deteriorate in some divisions. Systematic Board submitted statements of compliance pursuant efforts to improve cost efficiency and develop innovative to Section 161 of the German Stock Corporation products and services are intended to counter the effect Law, explicitly drawing attention to a small number of of such price pressure. In light of continued generally deviations. These statements of compliance have been positive business development throughout the Group, made available to Voith’s shareholders. net income in fiscal year 2006/2007 is expected to be in line with the high level recorded in the period under One of the deviations is due to the fact that the consoli- review (adjusted for special influences). dated financial statements are not made available to the public within 90 days after the end of the fiscal year Based on the assumption that the macroeconomic (Item 7.1.2). The remaining deviations relate to provi- and industry-specific climate will remain favorable, this sions that are either not required (Items 6.1 through 6.8, development also shapes the Group’s longer-term for example) or that do not seem appropriate to a family- planning. Positive business development is projected owned business such as Voith (Items 4.2.2, 4.2.4, 4.2.5 to continue through fiscal year 2007/2008. Alongside and 5.4.7). In fiscal year 2005/2006, the Supervisory the buoyant markets of Asia, other markets with upside Board again investigated the efficiency of its own potential – above all Russia – will become increasingly activities (Item 5.6). important to the Voith Group. All in all, Voith expects new orders and sales to grow, while cash flow should likewise remain positive.

Persistent international price pressure notwithstanding, productivity gains within the Group will once again posi- tively impact the return on sales in fiscal year 2007/2008. 82

Report of the Supervisory Board

The Supervisory Board met three times in the fiscal year company, marked an important step in reinforcing and just ended: on October 24, 2005, February 27, 2006, and defending Voith’s independence in future. In the period June 13, 2006. At each of these meetings, it examined in under review, the Supervisory Board again examined detail the economic development and general situation the efficiency of its own activities as recommended by of both the consolidated Group and the company (Voith the German Corporate Governance Code (Section 5.6), AG). The discussions at each meeting were based on resolving a number of changes to its own work at future reports by the members of the Board of Management meetings. The Chairman of the Supervisory Board was concerning the economic position of the Group and the also kept constantly informed about significant develop- Group Divisions, corporate planning (including financial ments and key decisions by the Board of Management. and investment planning), developments in the compa- He also consulted regularly with the President and Chief ny’s earnings and financial position, risk management, Executive Officer on matters of material importance. and issues of strategic orientation. The Supervisory Board also thoroughly explored key issues such as cur- The Personnel Committee met once in the fiscal year rent investment projects at the Voith Group Divisions and under review, on February 27, 2006. There was no need planned acquisitions. In the context of adjustments to the to convene the Mediation Committee formed pursuant shareholder structure advocated by shareholders who to Section 27 Paragraph 3 of the German Codetermina- are members of the Voith family, the Supervisory Board tion Act. The Balance Sheet Committee met on Febru- unanimously recommended that the company approve ary 15, 2006. It conducted an in-depth examination of the repurchase of shares hitherto owned by outside the financial statements of both the consolidated Group shareholders. This repurchase has since been complet- and Voith AG for fiscal 2004/2005, and of the report sub ed. The Supervisory Board is convinced that this move, mitted by the auditors, Ernst & Young AG Wirtschafts which once again made Voith AG a 100% family-owned prüfungsgesellschaft, Stuttgart. Changes likely to arise Management Report | Report of the Supervisory Board 83

from the impending transition to International Financial and the person responsible for auditing Voith AG and Reporting Standards (IFRS) and the anticipated impact the consolidated Group. They explained the material of these changes were also discussed on this occasion. results of the audit and were available to provide addi- At the request of those members of the Supervisory tional information. On the basis of its own examination, Board who represent the work force, a separate infor- the Supervisory Board also approved the management mation event was held in July 2006 to familiarize these report prepared for Voith AG and the consolidated members with the new financial reporting standards and Group. It further concurs in the proposal submitted by how they will be applied at Voith. the Board of Management regarding the appropriation of net income. The annual financial statements pre- The Annual General Meeting convened on April 5, 2006, pared for Voith AG and the consolidated Group have and formally approved both the managerial conduct of thus received formal approval. the Board of Management and the monitoring activities of the Supervisory Board in fiscal 2004/2005. The The Supervisory Board would like to thank the Board meeting also elected Ernst & Young AG, Wirtschafts of Management, all other levels of management, prüfungsgesellschaft, Stuttgart, to audit the annual the employees of the Group and the representatives financial statements again in fiscal 2005/2006. of the work force for their exemplary commitment and successful endeavors in the fiscal year under review. The auditor examined and granted its unqualified audit opinion on the accounting records, the annual financial On June 13, 2006, the Supervisory Board appointed statements and management report of Voith AG, and Dr. Roland Münch as a deputy member of the Board of the consolidated financial statements and management Management effective July 1, 2006. report for the Voith Group as a whole at September 30, 2006. In the course of its audit, Ernst & Young AG paid In September and October 2006, the Board of Manage- special attention to the “capitalization of development ment and the Supervisory Board respectively sub- costs, deferred taxes and travel expenses”, in accor- mitted their report on corporate governance and the dance with the mandate laid down by the Supervisory corresponding statements of compliance for fiscal Board in light of the change in financial reporting 2005/2006. standards.

In its meeting on February 15, 2007, the Balance Sheet Heidenheim, March 5, 2007 Committee examined the annual financial statements prepared for Voith AG and the consolidated Group in light of the audit reports. Thereupon, the committee Chairman of the Supervisory Board recommended that the Supervisory Board approve said financial statements, which it did at its meeting on March 5, 2007. Both meetings were attended by the relevant member of the auditor’s Management Board Dr. Michael Rogowski 84 5 85

Financial Report

87 Consolidated Statement of Income 88 Consolidated Balance Sheet 90 Statement of Changes in Equity 92 Consolidated Cash Flow Statement 93 Notes to the Consolidated Financial Statements 112 Notes to the Consolidated Statement of Income 118 Notes to the Consolidated Balance Sheet 136 Notes to the Consolidated Cash Flow Statement 137 Notes to the Segment Report 142 Other Information 148 The Voith Group and its Shareholdings

156 Trade Fairs 2007 158 Contact/Imprint 86 Voith AG – Consolidated Financial Report 2005/2006 87

Consolidated Statement of Income for the period from October 1, 2005 through to September 30, 2006

Notes 2005/2006 2004/2005 EUR in thousands

Sales (1) 3 738 541 3 465 274 Increase in inventories and capitalized costs (2) 91 262 9 532

Total Output 3 829 803 3 474 806

Other operating income (3) 422 919 342 757 Cost of material (4) (1 538 760) (1 375 147) Personnel expenses (5) (1 418 205) (1 222 545) Depreciation (117 867) (111 945) Other operating expenses (6) (875 057) (906 710)

302 833 201 216

Non-recurring result (7) (46 498) 0 Share of profits from associates 6 854 8 845 Interest result (8) (45 707) (44 991) Other financial result (9) 112 897 (3 153)

Income before taxes 330 379 161 917

Income taxes (10) (84 504) (65 360)

Net income before result attributable to providers of non-current capital 245 875 96 557

Result attributable to providers of non-current capital (5 482) (11 869)

Net income (after result attributable to providers of non-current capital) 240 393 84 688

Net income attributable to the Group 235 336 82 929

Net income attributable to minority interests 5 057 1 759 88 Voith AG – Consolidated Financial Report 2005/2006

Consolidated Balance Sheet for the Fiscal Year

as at September 30, 2006

Assets Notes 2006-09-30 2005-09-30 EUR in thousands

A. Non-Current Assets

I. Intangible assets (11) 400 325 368 926 II. Property, plant and equipment (12) 794 520 744 945 III. Investments in associates (13) 53 401 119 314 IV. Investments in securities (17) 16 882 17 505 V. Other financial assets (13) 43 735 31 486 VI. Other receivables and assets (16) 88 928 65 636 VII. Deferred tax assets (10) 117 117 117 249

Total Non-Current Assets 1 514 908 1 465 061

B. Current Assets

I. Inventories (14) 617 863 546 640 II. Trade receivables (15) 814 421 766 137 III. Marketable securities (17) 124 434 254 831 IV. Income tax assets 18 636 17 068 V. Cash and cash equivalents (18) 304 829 572 431 VI. Other receivables and assets (16) 140 297 195 752 VII. Held for sale assets (19) 2 725

Total Current Assets 2 020 480 2 355 584

Total Assets 3 535 388 3 820 645 Voith AG – Consolidated Financial Report 2005/2006 89

Equity and liabilities Notes 2006-09-30 2005-09-30 EUR in thousands

A. Equity and other Non-Current Capital provided by Shareholders

I. Issued capital 120 000 120 000 II. Revenue reserves 496 432 432 917 III. Other reserves 32 007 60 925 IV. Minority interests 12 981 16 815

Total Equity 661 420 630 657

V. Other non-current capital provided by shareholders 80 214 98 586

Total Equity and other Non-Current Capital provided by Shareholders (20) 741 634 729 243

B. Non-Current Liabilities

I. Provisions for pensions and similar obligations (21) 382 105 392 926 II. Other provisions (22) 138 452 141 426 III. Income tax liabilities 27 917 26 304 IV. Financial liabilities (23) 430 900 555 517 V. Other liabilities (24) 54 710 49 226 VI. Deferred tax liabilities (10) 97 739 97 813

Total Non-Current Liabilities 1 131 823 1 263 212

C. Current Liabilities

I. Provisions for pensions and similar obligations (21) 19 076 11 322 II. Other provisions (22) 345 829 394 538 III. Income tax liabilities 52 466 44 074 IV. Financial liabilities (23) 190 939 456 532 V. Trade liabilities (24) 297 487 251 264 VI. Other liabilities (24) 756 134 670 460

Total Current Liabilities 1 661 931 1 828 190

Total Equity and Liabilities 3 535 388 3 820 645 90 Voith AG – Consolidated Financial Report 2005/2006

Statement of Changes in Equity

Attributable to equity holders of the parent Minority Total interest Equity Issued Revenue Other capital reserves reserves Total EUR in thousands

Balance as at 2004-10-01 120 000 367 196 18 773 505 969 15 014 520 983 Gains on available-for- sale financial assets 4 997 4 997 816 5 813 Gains on cash flow hedges 12 339 12 339 0 12 339 Currency translation differences 29 262 29 262 5 29 267 Gain on hedge of net investment 9 174 9 174 2 9 176 Other gains (1 396) (1 396) 0 (1 396) Tax on items recognized directly in equity (12 224) (12 224) (14) (12 238) Total income for the year recognized directly in equity 42 152 42 152 809 42 961 Net income 82 929 82 929 1 759 84 688 Total income for the year 82 929 42 152 125 081 2 568 127 649 Changes in Group structure 2 792 2 792 (460) 2 332 Dividends (20 000) (20 000) (307) (20 307)

Balance as at 2005-09-30 120 000 432 917 60 925 613 842 16 815 630 657 Voith AG – Consolidated Financial Report 2005/2006 91

Attributable to equity holders of the parent Minority Total interest Equity Issued Revenue Other capital reserves reserves Total EUR in thousands

Balance as at 2005-10-01 120 000 432 917 60 925 613 842 16 815 630 657 Gains on available-for- sale financial assets (8 056) (8 056) (372) (8 428) Gains on cash flow hedges (15 097) (15 097) 0 (15 097) Currency translation differences (13 623) (13 623) (562) (14 185) Gains on hedge of net investment (3 739) (3 739) 0 (3 739) Other gains 2 791 2 791 0 2 791 Tax on items recognized directly in equity 8 806 8 806 (37) 8 769 Total income for the year recognized directly in equity (28 918) (28 918) (971) (29 889) Net income 235 336 235 336 5 057 240 393 Total income for the year 235 336 (28 918) 206 418 4 086 210 504 Changes in Group structure (2 569) (2 569) (7 133) (9 702) Acquisition of own shares (129 154) (129 154) (129 154) Dividends (40 098) (40 098) (787) (40 885)

Balance as at 2006-09-30 120 000 496 432 32 007 648 439 12 981 661 420

For further information regarding the development of equity, please see note (20) on page 127. 92 Voith AG – Consolidated Financial Report 2005/2006

Consolidated Cash Flow Statement

EUR in thousands 2005/2006 2004/2005

Net income before result attributable to providers of non-current capital 245 875 96 557 Depreciation 118 969 117 962 Changes in provisions and accruals (22 115) 35 157 Other non-cash items (2 591) (11 987) Changes in other operating assets and liabilities 13 340 (49 481) (Gains)/Losses on the sale of non-current assets and securities (121 659) 5 476

Cash flow from operating activities 231 819 193 684

Investments in property, plant and equipment and intangible assets (166 842) (191 288) Proceeds from the disposal of property, plant and equipment and intangible assets 4 279 50 468 Investments in financial assets and acquisition of subsidiaries (59 699) (141 758) Proceeds from the disposal of financial assets 215 565 19 643 Change in investments in securities 131 999 (25 023)

Cash flow from investing activities 125 302 (287 958)

Dividend payments (34 680) (34 877) Other changes in equity and non-current capital provided by shareholders (145 799) 0 Changes in loans (431 335) 25 835 Changes in financial receivables and financial liabilities (6 230) (32 880)

Cash flow from financing activities (618 044) (41 922)

Total cash flow (260 923) (136 196)

Exchange rate movements and changes in group structure (6 679) 7 992 Cash and cash equivalents at the beginning of the period 572 431 700 635

Cash and cash equivalents at the end of the period 304 829 572 431

For further information regarding the cash flow statement please see page 136. Voith AG – Consolidated Financial Report 2005/2006 93

Notes to the Consolidated Financial Statements

General Voith AG ist the parent company of the Voith Group financial statements solely on the basis of IFRS. and is situated at 43 St. Pöltener Street, Heidenheim/ The term IFRS also includes the current valid Inter- Brenz. Voith AG participates in the capital market national Accounting Standards (IAS). All binding and is registered at the Registration Court in Ulm pronouncements made by the International Account- (HRB 661319). The consolidated financial statements ing Standards Board (IASB) have been taken into of Voith AG are filed there. account, as have the additional stipulations required in accordance with Section 315 a of the German On January, 22, 2007, the Board of Management of Commercial Code (HGB). Voith AG released the consolidated financial statements for presentation to the Supervisory Board. The reporting currency for the consolidated financial statements is the Euro. Except where explicitly stated Pursuant to EU Regulation (EC) No. 1606/2002 in otherwise, all amounts are stated in thousands of conjunction with Section 315 a of the German Com- Euros. mercial Code (HGB), the consolidated financial statements of Voith AG for the fiscal year 2005/06 have, In the balance sheet, assets and liabilities are stated for the first time, been prepared in accordance with either as current or non-current items in line with their International Financial Reporting Standards (IFRS) maturity. Assets and liabilities that will be realized or and the interpretations of the International Financial will mature within 12 months after the end of the period Reporting Interpretations Committee (IFRIC). This under review are always classed as current. Regulation compels all companies that participate in the capital markets (i.e. whose issued debt is traded The consolidated statement of income was prepared on a regulated market in an EU member country) and in accordance with the nature of expense method. are domiciled in the EU to prepare their consolidated

Consolidated Group In addition to those companies acting as holding Subsidiaries are consolidated at the time when companies, the consolidated financial statements also the Voith Group acquires control over them. Their include all the Group’s major manufacturing, service inclusion in the consolidated financial statements and marketing companies both in Germany and ends when the parent company no longer controls abroad as at September 30 in each fiscal year. Con- these companies. In two cases Voith AG exercises sistent accounting and valuation policies are used control as defined in IAS 27 owing to a majority of to prepare the separate financial statements for sub voting rights in the relevant decision-making bodies. sidiary companies as applied for the parent company at each balance sheet date.

The following companies are included in the consolidated financial statements:

2006-09-30 2005-09-30

Voith AG and its fully consolidated subsidiaries Germany 58 55 Abroad 144 136

Associates accounted for using the equity method Germany 1 3 Abroad – –

Total 203 194 94 Voith AG – Consolidated Financial Report 2005/2006

The main companies consolidated for the first time in VPH Voith Paper GmbH & Co. KG, Heidenheim the fiscal year under review are Voith IHI Paper Technol VPMG Krieger GmbH & Co. KG, Mönchengladbach ogy Co., Ltd., Japan, Voith Turbo Aufladungssysteme VPPR Voith Paper GmbH & Co. KG, Ravensburg GmbH & Co. KG, Germany, Voith Turbo Power Trans- VPR Voith Paper Fiber Systems GmbH & Co. KG, mission Company, Ltd., China, Voith Turbo Lokomotiv- Ravensburg technik GmbH & Co. KG, Germany, and the companies VPSH Voith Paper Rolls GmbH & Co. KG, Heidenheim in the Hörmann Group, in which Voith has acquired the VPT Voith Paper Holding GmbH & Co. KG, majority of voting rights. Heidenheim VPWE Voith Paper Rolls GmbH & Co. KG, Weißenborn A list of the main subsidiaries subsumed under the VFPL Voith Paper Fabrics GmbH & Co. KG, Pfullingen consolidated financial statements is provided after this set of notes. VSH Voith Siemens Hydro Power Generation GmbH & Co. KG, Heidenheim An exhaustive German-language list of the companies VSHK Voith Siemens Hydro Kraftwerkstechnik included and not included in the consolidated financial GmbH & Co. KG, Heidenheim statements has been filed at the Registration Court in Ulm, Germany (HRB 661319). VTA Voith Turbo GmbH & Co. KG, Heidenheim VTHL Voith Turbo H+L Hydraulic GmbH & Co. KG, Companies in which Voith AG has opportunity directly or Rutesheim indirectly to exercise a significant influence on financial VTMH Voith Turbo Marine GmbH & Co. KG, and operating policy decisions (associated companies) Heidenheim are measured using the equity method. VTSK Voith Turbo Scharfenberg GmbH & Co. KG, Salzgitter Pursuant to Section 264 b HGB, the following limited partnerships are not required to prepare annual VZB J.M. Voith GmbH & Co. Beteiligungen KG, financial statements subject to the regulations valid for Heidenheim incorporated firms: VOGG Voith Grundstücksverwaltungs GbR, Heidenheim VISD Spüldienste Niederbayern GmbH & Co. KG, Dingolfing Since they are included in the consolidated financial VIHI ditis Systeme GmbH & Co. KG, Heidenheim statements of Voith AG, the following incorporated VIPH Voith Industrial Services Paper GmbH & firms are not required to comply with regular disclosure Co. KG, Heidenheim obligations insofar as the conditions defined in Section VIPS DIW Instandhaltung GmbH & Co. KG, 264 III HGB (reporting duties) and Section 302 of the Heidenheim German Stock Corporation Law (AktG; disclosure of VISI Voith Industrial Services Indumont GmbH & profit-and-loss transfer agreements) are met. Co. KG, Stuttgart VISK Voith Industrial Services Energy GmbH & VOIS Voith IT Solutions GmbH, Heidenheim Co. KG, Stuttgart VIH Voith Dienstleistungen GmbH, Heidenheim VIST DIW Instandhaltung GmbH & Co. KG, Stuttgart VOHB Voith Dienstleistungsbeteiligungen GmbH, VIME Voith Industrial Services Mechanical Heidenheim Engineering GmbH & Co. KG, Stuttgart Pursuant to Section 264 b Paragraph 3 HGB, a copy of VPAH Voith Paper Automation GmbH & Co. KG, the consolidated financial statements of Voith AG is filed Heidenheim with the Commercial Register in which each of these VPDN Voith Duria GmbH & Co. KG, Heidenheim companies is entered. VPEU Voith Paper GmbH & Co. KG, Euskirchen Voith AG – Consolidated Financial Report 2005/2006 95

Acquisitions of subsidiaries

Acquisitions in the Two major acquisitions were completed in fiscal year purchase of Hartmann & Lämmle GmbH fiscal year 2004/05 2004/05: the purchase of the Premier Group and the & Co. KG.

Premier Group Effective June 1, 2005, Voith Industrial Services as goodwill, which can be substantiated by a variety acquired the US American Premier Group, headquar- of factors. One is that Premier’s regional coverage, tered in Cincinnati, Ohio, USA, and formerly owned long-standing customer relationships and product by the Stuttgart-based Dürr AG. The Premier Group portfolio ideally complement the activities of is now wholly owned by Voith Industrial Services. Voith Industrial Services. Moreover, the acquisition of Premier also marks an important step in realizing Premier is a global provider of manufacturing support the internationalization strategy pursued by Voith services to the automotive industry. Its business Industrial Services. is concentrated in North and South America and in the UK. All acquired assets and liabilities were The companies in the Premier Group contributed recognized at fair value. The difference between sales of € 64.3 million and net income of € 2.4 million the purchase price and acquired equity that could to the Voith Group’s consolidated statement of not be assigned to any particular asset was stated income in fiscal year 2004/05.

Hartmann & Lämmle Hartmann & Lämmle GmbH & Co. KG was acquired All acquired assets and liabilities were recognized at GmbH & Co. KG effective October 1, 2004, and is now a wholly owned fair value. The difference between the purchase price subsidiary of Voith Turbo GmbH & Co. KG, Heiden- and acquired equity that could not be assigned to any heim. particular asset was stated as goodwill. This goodwill accounts for the fact that the acquisition contributes Hartmann & Lämmle GmbH & Co. KG is a leading additional skills and expertise in hydraulics to the vendor of hydraulic system solutions. The company Group. has been renamed Voith Turbo H+L Hydraulic GmbH In the fiscal year 2004/05, Hartmann & Lämmle GmbH & Co. KG, is headquartered in Rutesheim, Germany, & Co. KG contributed sales of € 20.9 million and net and is part of the Voith Turbo Group Division. income of € 0.1 million to the Voith Group’s consolidat ed statement of income.

Acquisitions in the fiscal year 2005/06

Hörmann Industrie- Effective January 1, 2006, DIW Deutsche Industrie- Hörmann Industrietechnik specializes in providing technik GmbH wartung AG (DIW), a subsidiary of Voith Industrial complex technical services primarily to the auto- Services, obtained the majority interest in Hörmann motive industry. The company employs about 1800 Industrietechnik GmbH, Kirchseeon, Germany, by people in nine countries. The goodwill mentioned acquiring a further 25.8% stake in the company. above derives from the expertise of Hörmann’s work DIW now holds 51% of Hörmann Industrietechnik’s force in this highly specialized area. shares. All acquired assets and liabilities were recognized at fair value. The difference between the Hörmann Komponentenbau GmbH, Saarbrücken, purchase price and acquired equity that could not was acquired with the intention of resale. be assigned to any particular asset was stated as In the fiscal year 2005/06, the companies in the goodwill. Hörmann Group contributed sales of € 76.2 million and a net loss of € 7.3 million to the Voith Group’s consolidated statement of income. 96 Voith AG – Consolidated Financial Report 2005/2006

Voith Turbo Effective September 30, 2006, Voith Turbo acquired for combustion engines. All acquired assets and Aufladungssysteme a 60% interest in IAP Technology GmbH, which was liabilities were recognized at their preliminary fair GmbH & Co. KG then merged with the new Voith Turbo Aufladungs- value. The difference between the purchase price (VTGO) systeme GmbH & Co. KG, headquartered in Gom- and acquired equity could not be assigned to any mern, Germany. The aim of this purchase was to particular asset and was stated as goodwill. expand Voith’s activities in the field of turbochargers

Other In fiscal year 2005/06, companies classed as “Oth- The fair value of the acquired assets and liabilities is Acquisitions ers” contributed sales totaling € 43.2 million and net listed in the table below. Please note, however, that income of € 1.2 million to the Voith Group’s consoli- the purchase prices assigned to VTGO and to Voith dated statement of income. IHI Paper Technology Co. Ltd. (reported under “Others”) are preliminary figures.

Balance sheet item Total Hörmann VTGO Others

Non-current assets 20 862 8 108 10 171 2 583 Current assets 68 714 44 185 2 606 21 923 Accruals and provisions (7 772) (6 419) (71) (1 282) Liabilities (62 657) (37 816) (7 306) (17 535)

Carrying amount 19 147 8 058 5 400 5 689

Minority interests and other non-current capital provided by shareholders (9 556) Goodwill 26 202 Other effects on equity due to first-time consolidation (1 425) Value of participating interest as at 2006-09-30 34 368 Value of participating interest before consolidation (10 378) Purchase price of acquired interest 23 990 Cash and cash equivalents (7 844) Borrowings (12 684)

Net cash inflow (outflow) 3 462

Incidental costs related to acquisitions in fiscal year how consolidated sales and consolidated net income 2005/06 are of minor significance. would have developed if all completed acquisitions had taken place effective October 1, 2005, or to Since the newly acquired companies previously measure the carrying amounts that would have been observed different fiscal years and/or did not prepare required for IFRS reporting purposes immediately annual financial statements in compliance with IFRS, prior to their acquisition. it is not possible at reasonable cost to determine Voith AG – Consolidated Financial Report 2005/2006 97

Principles of For purposes of the capital consolidation and in In accordance with the option permitted by IFRS 1, Consolidation accordance with the purchase method prescribed by Voith has elected not to apply the provisions of IFRS 3 IFRS 3, the cost of the combination is netted against retroactively to business combinations effected before the corresponding shareholders’ equity acquired, the transition to IFRS. Existing goodwill has thus which is stated at its value as at the acquisition date. been adopted from the HGB accounting figures as at Any excess of cost over the carrying amount is capi- October 1, 2004. talized as goodwill. Excesses of the carrying amount over cost are recognized in profit and loss. The same accounting and valuation policies are used to determine Voith’s stake in the shareholders’ Before the transition to IFRS, the cost of a combina- equity of all companies accounted for using the equity tion was netted against shareholders’ equity calcu- method. This calculation is based on each company’s lated using the book value (carrying amount) method. most recent available set of financial statements. Since the fiscal year 1998/1999, any excesses of cost Intercompany transactions and results are eliminated. over the carrying amount have been capitalized as Unrealised gains in stocks and fixed assets relating goodwill. Any such differences accruing from previ- to intercompany transactions are eliminated in the ous reporting periods were netted against reserves. consolidated statement of income. Intercompany Excesses of the carrying amount over cost were sales and other intercompany earnings are netted recognized in reserves. against the corresponding expenses. Deferred tax is calculated for consolidation transactions that are The purchase method is applied in cases where recognized in profit and loss. the Voith Group subsequently purchases additional shares in companies in which it already exercises control.

Foreign Currency The consolidated financial statements are prepared in In the consolidated statement of income, income and Translation Euro. Items carried in the financial statements of indi- expenses are translated at average exchange rates. vidual Group companies are measured on the basis of Retained earnings and losses are translated using the this functional currency. relevant historical exchange rate on the closing date of the previous fiscal years. Shareholders’ equity of foreign subsidiaries is translated at historical rates. All other items on the balance Differences arising from currency translation are sheet are translated at the rates applicable as at netted against other reserves. the balance sheet date. One exception to this rule is goodwill arising from business combinations effected Translation adjustments arising from loans denomi- prior to the transition to IFRS, which is still translated nated in foreign currencies (where these are used to at historical exchange rates. hedge net investments in foreign business operations) are recognized in equity until the underlying net At the time at which they originate, loans, receivables investment is disposed of. Only after disposal are they and payables denominated in foreign currencies are recognized in the consolidated statement of income. translated at the exchange rate valid on the trans These translation adjustments give rise to deferred tax action date. At fiscal year end these monetary items items that are also recognized in equity. are measured based on the current exchange rate ruling on the balance sheet date. Gains or losses are recognized as unrealized profits or losses. 98 Voith AG – Consolidated Financial Report 2005/2006

In the period under review, translation of the currencies that are of significance to the Voith Group was based on the following exchange rates:

Exchange rates between the Euro and the main foreign currencies in the Voith Group Exchange rate as Average rate at balance sheet date 2006-09-30 2005-09-30 2005/06 2004/05 US Dollar 1.2669 1.2049 1.2314 1.2692 Brazilian Real 2.7512 2.6619 2.7221 3.2596 Pound Sterling 0.6775 0.6824 0.6842 0.6880 Swedish Krona 9.2700 9.3240 9.3428 9.1653 Norwegian Krona 8.2350 7.8600 7.9583 8.0872 Canadian Dollar 1.4115 1.4075 1.4004 1.5508 Australian Dollar 1.6985 1.5823 1.6458 1.6608 Chinese Renminbi 10.0178 9.7503 9.8659 10.4525 Japanese Yen 149.4500 136.7000 142.8546 136.3023

Summary of Signifi- The consolidated financial statements are prepared In accordance with IAS 27, consistent accounting and cant Accounting and using the historical cost convention. The only excep- valuation policies are used to prepare the separate Valuation Policies tions to this rule are derivative instruments and finan- financial statements for the companies subsumed cial instruments held for sale, which are recognized under the consolidated financial statements. at fair value. Acquisitions and disposals of financial The main accounting and valuation policies are listed assets are reported at the settlement date. and explained below.

Income and expenses Sales revenue (less various cash and other discounts Operating expenses are recognized as expenditure at granted to customers) is recognized when products the time when a service is used or when other sales or merchandise have been delivered and/or services related expenses are incurred. Interest items are rec- rendered and when the risk of ownership has been ognized as income or expenses as they accrue. Taxes transferred to the customer. In the case of long-term on income are calculated in accordance with taxation construction contracts, sales are recognized using law in the countries in which the Group operates. the percentage-of-completion method. A detailed explanation of this method is provided in the notes on “Long-term construction contracts”.

Intangible assets Acquired intangible assets are capitalized at cost and costs that are directly attributable to the development depreciated in a straight line over the anticipated use- process. These assets are depreciated in a straight ful lives. Most of these assets are software programs line from the start of production for a defined period, that are depreciated over a three-year period. usually between three and five years. If the requirements for capitalization are not met, expenses are In accordance with IAS 38, internally generated intan- recognized in profit and loss in the fiscal year in which gible assets are capitalized as development costs, they were incurred. using their production costs, provided that manufacture of these assets will result in future economic Unscheduled write-downs (impairments) are effected benefits for the Group. Production costs include all in accordance with IAS 36 if the recoverable amount Voith AG – Consolidated Financial Report 2005/2006 99

(the present value of expected future cash flows from Cash flow forecasts are based on the detailed the use of the assets concerned) falls below their financial budget for the coming year, on the financial carrying amount. Should the reasons for impairments planning figures for the coming two years and on effected in previous periods no longer apply, these well-founded top-down planning for a two- to six-year impairments are reversed. period. Cash flows for periods after the sixth fiscal year are extrapolated at a constant 1% growth rate. Goodwill is subjected to annual impairment tests. These growth rates do not exceed the average long- To calculate its value, goodwill is assigned to four- term growth rates of the business areas in which the cash-generating units. In line with the management’s corresponding cash-generating units operate. internal reporting practices, these four cash-genera ting units are identified on the basis of the Group’s The discount rates are derived from a calculation of operating activities. Voith AG has therefore defined the weighted average cost of capital, which is itself the Group Divisions Voith Paper, Voith Turbo, Voith based on the debt/equity structure at Voith and the Siemens Hydro Power Generation and Voith Industrial financing costs of comparable competitors for each Services as its cash-generating units. of the cash-generating units. An after-tax interest rate of between 5.9% and 6.2% was used to calculate the The Voith Group refers to the value in use (based on present value of future net cash inflows. Extrapolation current management planning) to calculate the value to the pre-tax rate that must be stated pursuant to of goodwill. The assumptions on which planning is IAS 36 results in interest rates of between 7.9% and based are adjusted in line with new knowledge, includ- 9.0%. ing adequate provision for macroeconomic trends and historical developments.

Property, plant Property, plant and equipment is stated at cost less all directly attributable production costs and an appro- and equipment scheduled depreciation and, where necessary, priate share of production overheads. for impairment. Production costs for internally generated property, plant and equipment include Depreciation is effected in a straight line over the following useful lives:

Useful life

Buildings 40 to 50 years Plant and machinery 4 to 15 years Other equipment 4 to 12 years

The recognized carrying amount of property, plant and Impairment losses are reversed if the fair value of a equipment is subjected to an impairment test if unusu- previously impaired asset subsequently increases al events or market developments indicated that they again. may be impaired. To this end, the carrying amount of an asset or cash-generating unit is compared with its Repair and maintenance costs are recognized as recoverable amount, which is defined as the higher of expenses at the time when they are incurred. Sig- fair value less costs to sell and value in use. nificant renewals and improvements are capitalized. Interest on borrowed funds is not capitalized. 100 Voith AG – Consolidated Financial Report 2005/2006

Leased assets Leasing transactions that transfer substantially all lease period. All other leases in which Voith Group risks and opportunities incidental to use of the leased companies act as the lessee are stated as operating property, plant or equipment to the Voith company leases. The lease payments for operating leases are (the lessee) are classified as finance leases. In such recognized as expenses in a straight line over the cases, the lessee capitalizes the leased asset and term of the lease. recognizes a corresponding liability at the start of the

Financial assets and Shares carried under financial assets as other invest- to maturity in the categories non-current and current marketable securities ments are stated at cost, because no active market assets. The Voith Group holds neither marketable exists for these companies and their fair value cannot securities for trading purposes nor to maturity. Avail- be determined at reasonable cost. Such assets are able-for-sale securities are stated at their market written down if substantial objective evidence indi- value (where market valuations can be obtained) or at cates that they are impaired. fair value. Unrealized gains and losses are recognized separately in equity, subject to due account for In applying the equity method, associates are stated deferred taxes, until such time as they are realized. as the amount of equity held by the Voith Group plus Where no market valuation is available and fair value any goodwill that has not yet been written down. cannot be determined at reasonable cost, market- Changes in associated companies’ equity that are not able securities are recognized at cost. Impairments recognized in profit and loss are likewise not recog- on available-for-sale securities and financial assets nized directly in equity in the consolidated financial are recognized in profit and loss if it is likely that the statements. market value will remain permanently below the cost of acquisition. In accordance with IAS 39, loans are classified as non-current loans under other financial assets and are To ensure an accurate portrayal of the assets, finan- stated at amortized cost, adjusted (where necessary) cial and earnings position of the Voith Group, some for impairments. marketable securities are recognized at fair value through profit and loss (using what is known as the In accordance with IAS 39, a distinction is to be “fair value option”). Valuation adjustments are thus drawn between marketable securities held for trading recognized immediately in profit and loss, as are the purposes, marketable securities that are available underlying portfolio hedging instruments. for sale and marketable securities that will be held

Inventories Raw materials and supplies, merchandise, work in The weighted average cost, or costbased on the progress and finished goods are all stated under first-in, first-out (FIFO) method is capitalized in the inventories at the lower of cost and net realizable balance sheet. Suitable allowances are made for value. Production costs include both direct costs inventory risks arising from the period in stock, lower and an appropriate share of material and production realizable values etc. These allowances are reversed overheads and production-related depreciation that if the reasons for the initial impairment of inventories can be attributed directly to the production process. no longer exist. Voith AG – Consolidated Financial Report 2005/2006 101

Long-term construc- Long-term construction contracts are recognized certainty, it is not possible to calculate the percentage tion contracts based on the percentage-of-completion (PoC) of completion based on project revenues and costs. method. The cost-to-cost method is used to calculate In such cases, sales revenues in the amount of costs the ratio of costs already incurred to forecasted total incurred for the construction contract to date are costs in order to determine the percentage of com- recognized immediately as income, while the costs pletion. Realized earnings are then stated as sales incurred by the construction contract in the reporting and, after deducting customer advances, as trade period are immediately recognized as expenses. accounts receivables. If the outcome of a construc- Appropriate provisions are formed to cover anticipated tion contract cannot be forecasted with any degree of losses on such contracts in light of perceivable risks.

Accounts receivable Accounts receivable and other assets (with the excep- Accounts receivable that bear little or no interest and and other assets tion of financial derivatives) are stated at face value that have maturities of more than one year are stated or at cost. Individual allowances cover bad-debt risks. at their discounted present value.

Financial derivatives Voith uses a variety of financial derivatives – usually Fair value hedges and hedging forward exchange contracts, currency options and relationships interest rate swaps – to hedge underlying transac- Fair value hedges are hedges of the Group’s expo- tions. Essentially, the Group applies two policies sure to changes in the fair value of a recognized asset – either the fair value hedge accounting of firm com- or liability or an unrecognized firm commitment that is mitments or cash flow hedge accounting – to hedge attributable to a particular risk and could affect profit operating business transactions. or loss. For fair value hedges, the carrying amount of the hedged item is adjusted for gains and losses At the inception of a hedge relationship, the Group attributable to the risk being hedged, the derivative is formally designates and documents the hedge rela- remeasured at fair value, and gains and losses from tionship to which the Group wishes to apply hedge both are recognized in profit or loss. accounting and the risk management objective and strategy for undertaking the hedge. The documenta- For fair value hedges relating to items carried at tion includes identification of the hedging instrument, amortized cost, the adjustment to carrying amount is the hedged item or transaction, the nature of the risk amortized through profit or loss over the remaining being hedged and how the Group will assess the term to maturity. hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value When an unrecognized firm commitment is desig- or cash flows attributable to the hedged risk. Such nated as a hedged item, the subsequent cumulative hedges are expected to be highly effective in achiev- change in the fair value of the firm commitment attrib- ing offsetting changes in fair value or cash flows and utable to the hedged risk is recognized as an asset or are assessed on an ongoing basis to determine that liability with a corresponding gain or loss recognized they actually have been highly effective throughout in profit or loss. The changes in the fair value of the the financial reporting periods for which they were hedging instrument are also recognized in profit or designated. loss.

Hedges that meet the strict criteria for hedge accounting are accounted for as follows. 102 Voith AG – Consolidated Financial Report 2005/2006

The Group discontinues fair value hedge accounting If the forecast transaction is no longer expected to if the hedging instrument expires is sold, terminated occur, amounts previously initially recognized directly or exercised or the hedge no longer meets the in equity are transferred to profit or loss. If the hedging criteria for hedge accounting or the Group revokes instrument expires, is sold, terminated or exercised the designation. Any adjustment to the carrying without replacement or rollover, or if the designation amount of a hedged financial instrument is made as a hedge is revoked, amounts previously recog- using the effective interest method to amortize it in nized in equity remain in equity until the forecast the statement of income. Amortization may begin as transaction occurs. If the related transaction is not soon as an adjustment exists and shall begin no later expected to occur, the amount is recognized in profit than when the hedged item ceases to be adjusted for or loss. changes in its fair value attributable to the risk being hedged. Where no hedging relationship exists to an underlying transaction (i.e. where hedge accounting does not apply), financial derivatives are classified as held-for- Cash flow hedges trading instruments. Changes in the fair value of these instruments are recognized in profit and loss. Cash flow hedges are a hedge of the exposure to variability in cash flows that is attributable to a particu- Financial derivatives with positive values are stated lar risk associated with a recognized asset or liability under other assets, those with negative values are or a highly probable forecast transaction and could stated under other liabilities. affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognized directly A treasury tool is used to manage all external hedges. in equity, while the ineffective portion is recognized in profit or loss. The same treasury tool is also used to calculate the fair value of forward exchange contracts. The original Amounts initially recognized directly in equity are forward rate is compared with the forward rate calcu- transferred to the statement of income when the lated at the balance sheet date. The difference is dis- hedged transaction affects profit or loss, such as counted to the balance sheet date. The forward rate is when hedged financial income or financial expense calculated based on interest rates for the two curren- is recognized or when a forecast sale or purchase cies determined by linear approximation on the basis occurs. Where the hedged item is a non-financial of current LIBOR rates. The fair value of options, asset or liability, the amounts recognized in equity are interest rate swaps and interest rate caps is based transferred to the initial carrying amount of the non- on information supplied by banks. This information is financial asset or liability. calculated on the basis of certain assumptions and using recognized valuation models (Black-Scholes and Heath-Jarrow-Morton). Voith AG – Consolidated Financial Report 2005/2006 103

Cash and cash Cash and cash equivalents include cash and checks accounts include both dialy deposits and time depos- equivalents in hand, balances in bank accounts and other cash its with fixed maturities of up to three months. equivalents. Under this item, balances in bank

Non-current assets Non-current assets are classified as held for sale if continuing use. Non-current assets held for sale are held for sale their carrying amount is to be recovered principal- measured at the lower of their carrying amount and ly through a sale transaction rather than through their fair value less costs to sell.

Deferred taxes In accordance with IAS 12, deferred tax assets and expected to be valid in the countries concerned at the liabilities are formed for timing differences resulting time of realization. from valuation differences arising between tax report ing for IFRS purposes. Impairments are recognized on deferred tax assets that are not likely to be realized within a foreseeable Deferred tax items are also formed for tax losses period. carried forward insofar as it is reasonable to expect that they will be realized in the near future. Deferred Deferred tax assets and deferred tax liabilities may be taxes that relate to items recognized directly in equity netted if the Group has an enforceable legal claim to are themselves recognized in equity. offset actual tax refund entitlements against actual tax liabilities or if they concern the same taxpaying entity. Deferred taxes are calculated based on the tax rates that, in light of the current legal position, will be or are

Accrued pension Actuarial measurement of pension provisions is based In measuring its defined benefit liability pursuant to liabilities and similar on the projected unit credit method prescribed by IAS IAS 19.54, an enterprise must recognize a portion of obligations 19. This method takes into account known pensions its actuarial gains and losses as income or expenses and acquired vested rights at the balance sheet date, if the net cumulative unrecognized actuarial gains as well as factors such as expected future increases in and losses at the end of the previous reporting period salaries and pensions. Defined benefit obligations are exceeded the greater of: measured based on the proportion of future benefits a) 10% of the present value of the defined benefit accrued at the balance sheet date. Measurement obligation at that date (before deducting plan makes due provision for assumptions about the future assets); and development of certain parameters that could affect b) 10% of the fair value of any plan assets at the actual future benefit amount. that date. The 10 % corridor rule prescribed by IAS 19.92 is applied when recognizing actuarial gains and losses The portion of actuarial gains and losses to be recog- in the balance sheet and in profit and loss. nized is the excess determined pursuant to IAS 19.92 divided by the expected average remaining working lives of the employees participating in a given plan. 104 Voith AG – Consolidated Financial Report 2005/2006

Other provisions In accordance with IAS 37, provisions are formed are measured based on services still to be rendered, for all perceivable risks and obligations of uncertain usually in the amount of the production costs expect- timing or amount in the amount that is likely to be ed to be incurred. realized. These provisions are not netted against recourse claims. Provisions are formed where the Provisions that will not lead to an outflow of resources Group has present obligations in respect of third par- in the subsequent period are stated at their discount- ties resulting from past events that will probably lead ed present value at fiscal year-end. The discount rate to a future outflow of resources whose amount can be is derived from market interest rates. The present estimated reliably. value also includes anticipated cost increases.

Provisions for warranty claims are based on historical If an amount set aside as a provision is expected to be claim trends and estimated future trends. Specific refunded (through an insurance claim, for example), provisions are set up for known claims. the refunded amount is stated separately as an asset if it is almost certain to be realized. Income from Provisions for outstanding expenses, anticipated refunds is not netted against expenses. losses on orders and other order-related obligations

Liabilities Current liabilities are stated at their repayment Liabilities arising from leasing contracts that are clas- amount. Financial liabilities are measured at their sified as finance leases in accordance with the criteria amortized cost. Amortized cost consists of the laid out in IAS 17 are recognized at the present value acquisition cost less repayments, issue charges and of the minimum lease payments at the start of the the amortization of any premium or discount. Where lease. Thereafter, they are stated under financial liabilities serve as underlying transactions in the liabilities at their amortized cost. Lease payments context of hedging relationships, they are stated at are split into an interest component and a repayment their fair value. component. The interest component of each payment is recognized as an expense in profit and loss.

Classification of In accordance with IAS 32, financial instruments that Both minority interests in German limited partner- minority interest entitle the holder to repayment of the capital made ship and interests held by virtue of put options are holders’ capital in available to the company must be classified as liabili- therefore classified as liabilities and stated at carry- limited partnerships ties. In companies that operate as limited partner- ing amount under “other non-current capital provided and due to put options ships, shareholders have the right (under German law) by shareholders”. In the consolidated statement of to demand repayment of the capital they have made income the profit or loss attributable to the provides available to the company. This right cannot be of non-current capital is disclosed separately under excluded by the shareholders agreement. Put options “Result attributable to providers of non-current create a similar obligation pursuant to IAS 32. capital”. Voith AG – Consolidated Financial Report 2005/2006 105

Use of estimates In order to properly and fully prepare the consolidated refund claims will be realized, and to measure and financial statements, the management must make recognize construction contracts and provisions (in estimates and assumptions that will influence the particular the actuarial parameters used to calculate values reported for assets and liabilities on the bal- pensions and other obligations) and the probable ance sheet, the information provided in the notes, and costs associated with warranty, process and environ- the figures reported for income and expenses in the mental risks. period under review. These discretionary decisions and estimates are Estimates are used to determine the useful lives for based on assumptions derived from the knowledge intangible assets and property, plant and equipment in available at the time when the consolidated financial the Voith Group, to measure the value of goodwill and statements are prepared. Voith regularly examines fixed assets (especially the cash flow forecasts and these assumptions and, where appropriate, adjusts the discount factors used for this purpose), to assess them in light of actual developments. the likelihood that receivables, other assets and tax

Adoption of amended The following revised and newly published IFRSs and Amendments to IAS 32: “Financial Instruments: Disclosure and new standards IFRICs have already been endorsed for the European and Presentation” and IAS 39: “Financial Instruments: and interpretations Union by the Commission of the European Commu- Recognition and Measurement” nities. Accordingly, the amended versions must be adopted by the Voith Group with effect from the speci- Amendments made to IAS 32 and IAS 39 have fied dates. Where isolated amendments have been changed provisions concerning the use of the fair adopted earlier, this is stated explicitly. The impact of value option. Voith adopted these amendments ear- standards to be applied in future to the Voith Group is lier, allowing the group to recognize some marketable currently being examined. securities at fair value through profit and loss.

The scope of IAS 39 has also been extended to Amendments to IAS 1: “Presentation of Financial include rules governing financial guarantee contracts Statements” and hedging of expected internal transactions. These amendments must be adopted for fiscal years that These amendments governs compulsory disclosure begin on or after January 1, 2007. in relation to the objectives, guidelines and proce- dures used for capital management and are to be adopted for reporting periods that begin on or after January 1, 2007.

Amendments to IAS 19: “Employee Benefits”

The amendments to IAS 19 give companies the option of recognizing actuarial gains and losses directly in equity as they arise. Voith has decided not to use this method. These amendments also necessitate additional information in the notes and take effect for fiscal years that begin on or after January 1, 2006. 106 Voith AG – Consolidated Financial Report 2005/2006

IFRS 7: “Financial Instruments: Disclosures” IFRIC 7: “Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies” This new standard covers all compulsory disclosures in relation to financial instruments. It prescribes the This interpretation specifies how to proceed in the disclosure of information about the importance of event that a company’s functional currency is clas- financial instruments and about the nature and scope sified for the first time as hyperinflationary. IFRIC 7 of risks associated with these instruments. This must be adopted for the first time in fiscal years that standard replaces the compulsory disclosures hither- begin on or after March 1, 2006. to prescribed by IAS 30 and IAS 32. IFRS 7 must be adopted for fiscal years that begin on or after January 1, 2007. IFRIC 9: “Reassessment of Embedded Derivatives”

IFRIC 9 specifies how the rules governing the IFRIC 4: “Determining Whether an Arrangement Contains a reporting of embedded derivatives in IAS 39 are to Lease” be applied. This interpretation must be adopted for the first time in fiscal years that begin on or after IFRIC 4 specifies criteria to identify leasing elements June 1, 2006. in contracts that are not formally classified as leasing contracts. It must be adopted for the first time in fiscal years that begin on or after January 1, 2006. Voith AG – Consolidated Financial Report 2005/2006 107

Impact of the transition to IFRS accounting

Up to and including fiscal 2004/05, the Voith Group In the current IFRS consolidated financial statements prepared its consolidated financial statements in all standards (IAS and IFRS) and interpretations accordance with the German Commercial Code (SICs and IFRICs) that were effective as at Sep- (HGB). tember 30, 2006 have been applied. Impacts of this transition have been offset against reserves as at October 1, 2004.

The table below lists the individual adjustments that were necessary:

Reconciliation of Equity Note 2004-10-01 2005-09-30 EUR in thousands

Total Equity – HGB 523 111 583 240

Capitalization of development expenditure a) 13 137 18 631 Impairment of goodwill b) (53 003) (40 268) Fair value or revaluation as deemed cost c) 47 230 44 996 Other adjustments to fixed assets d) (19 792) 22 519 Inventory valuation e) 19 116 13 564 Recognition and valuation of long term construction contracts f) 17 407 – Recognition and valuation of financial instruments g) 20 052 20 412 Recognition and valuation of marketable securities/cash and cash equivalents h) 1 589 (240) Recognition and valuation of equity investments i) – 4 429 Recognition and valuation of pension provisions j) (86 693) (72 292) Recognition and valuation of other provisions k) 101 071 117 770 Taxes l) 29 220 16 482

Total equity and other non-current capital provided by shareholders 612 445 729 243

Less other non-current capital provided by shareholders m) (91 462) (98 586)

Total Equity – IFRS 520 983 630 657 108 Voith AG – Consolidated Financial Report 2005/2006

Reconciliation of Net Income Note 2005-09-30 EUR in thousands

Net income – HGB 98 086

Recognition and valuation of long term construction contracts f) (17 407) Inventory valuation e) (1 702) Capitalization of development expenditure a) 5 494 Recognition and valuation of pension provisions j) 8 826 Impairment of goodwill b) 12 735 Fair value or revaluation as deemed cost c) (2 234) Other adjustments to fixed assets d) (3 051) Recognition and valuation of other provisions k) 16 772 Recognition and valuation of financial instruments g) (23 196) Recognition and valuation of equity investments i) 5 880 Recognition and valuation of marketable securities/cash and cash equivalents h) (8 618) Taxes l) 4 972

Net income before result attributable to providers of non-current capital 96 557 less result attributable to provides of non-current capital m) (11 869)

Net income – IFRS 84 688

Notes:

a) Capitalization Costs incurred in the development of new products are Under the German Commercial Code (HGB), it was of development capitalized and subjected to scheduled depreciation, not permissible to capitalize development expenditure. expenditure provided that the criteria laid out in IAS 38 are met.

b) Impairment of Voith has elected not to apply the provisions of IFRS 3 goodwill was written down in the IFRS opening bal- goodwill retroactively to business combinations effected before ance sheet. See also note (11) Intangible Assets. the transition to IFRS. Existing goodwill has thus been adopted from the HGB accounting figures at the In the fiscal year 2004/05, scheduled depreciation of transition date. goodwill pursuant to HGB provisions was reversed for the purposes of IFRS accounting. In accordance with IAS 36, this goodwill is subjected to an annual impairment test. As a result of this test, Voith AG – Consolidated Financial Report 2005/2006 109

c) Fair value or When the transition is made to IFRS, a company can individual buildings, the associated land and machin- revaluation elect to measure individual items of property, plant ery were measured at fair value for the purposes of as deemed cost and equipment at fair value and to adopt this fair IFRS reporting. The fair value of these assets was value as the deemed cost at this time. Accordingly, € 53 800 thousand.

d) Other adjustments The useful lifes of fixed assets were adjusted in line In the fiscal year 2004/05, fixed assets (including to fixed assets with their expected useful lifes. goodwill) were translated at the rate ruling as at balance sheet date in the HGB financial statements, In line with HGB provisions, fixed assets were trans- in accordance with DRS 14. In the IFRS financial lated at historical exchange rates up to and including statements, goodwill arising from business combi- the fiscal year 2003/04. In the IFRS opening balance nations effected before the transition to IFRS is still sheet, fixed assets – with the exception of goodwill translated at historical exchange rates. – were translated at the rate as at balance sheet date. For IFRS purposes, goodwill was also translated at historical exchange rates.

e) Inventory The effects presented are attributable to the IAS 2 valuation provisions governing the determination of net realizable value.

f) Recognition and This adjustment is based on the uniform, Group-wide valuation of long term adoption of the IAS 11 provisions governing the report construction contracts ing of construction contracts.

g) Recognition and This adjustment item is based essentially on the fol- • Under IFRS, all financial derivatives are recog- valuation of financial lowing differences between HGB and IFRS: nized at fair value. Changes in fair value are instruments (IAS 39) generally recognized in profit and loss. Where the • General allowances to cover general credit conditions identifying cash flow hedge accounting risks are lower under IFRS than under HGB. are met, however, changes in fair value are initially recognized directly in equity. • Under IFRS, receivables and liabilities denominated in foreign currencies are translated at the • Under IFRS, loans and other financial liabilities exchange rate ruling as at the balance sheet date. are recognized at amortized cost using the effec- Under HGB, hedged foreign currency receivables tive interest method or, in the context of hedging and liabilities are translated at the hedged relationships, at fair value. Under HGB, these exchange rate. HGB also requires the recognition items are recognized at their repayment amount. of receivables at the lower of cost or fair value. 110 Voith AG – Consolidated Financial Report 2005/2006

h) Recognition and Under IFRS, the majority of marketable securities HGB, marketable securities are stated at the lower of valuation of market- (available-for-sale securities) are measured at fair cost or fair value. able securities/cash value. Changes in the fair value of these securities and cash equivalents are recognized in equity until they are sold. Under The table below shows the breakdown of these marketable securities:

2005-09-30 2004-09-30 EUR in thousands

Carrying amount under IFRS 272 336 261 723 thereof available-for-sale marketable securities 214 708 216 201 thereof marketable securities recognized at fair value through profit and loss 57 628 45 522

Carrying amount under HGB 263 219 243 731 thereof non-current marketable securities 12 572 10 733 thereof current marketable securities 250 647 232 998

i) Recognition and Under HGB, the Group’s equity interests in DIS are reported as investments in associates and are valuation of equity AG, Düsseldorf (DIS) and Grundstücks- und Bau measured using the equity method. The portion of the investments gesellschaft AG Heidenheim (GBH) were treated as earnings of associated companies that is attributable marketable securities held as current assets and were to the Voith Group is recognized separately in profit thus measured at cost. Under IFRS, these shares and loss.

j) Recognition and Under HGB, pension commitments are measured In this item, significant differences between the num- valuation of pension using the projected benefit valuation method pursuant bers reported under HGB and IFRS arise from the fact provisions to Section 6 a of the German Income Tax Act (EStG). that IFRS takes account of future increases in salaries For foreign subsidiaries, pension commitments are and pensions and assumes lower discount rates. measured on the basis of local stipulations. Under IFRS, the projected unit credit method is used for all In line with the option allowed by IFRS 1, actuarial Group companies in accordance with IAS 19. gains and losses accumulated up to the date of the opening balance sheet were immediately netted against reserves.

k) Recognition and This item contains the following main adjustments: • Provisions for restructuring that do not satisfy the valuation of criteria laid down in IAS 37 are not recognized other provisions • Under HGB, the measurement of order-related under IFRS. provisions (such as provisions for anticipated losses) includes general administrative and • Deferred expenditure provisions (such as selling costs. By contrast, IFRS eliminates this provisions for deferred maintenance) are not component in measuring the provision. permissible under IFRS.

• Provisions are discounted under IFRS. Voith AG – Consolidated Financial Report 2005/2006 111

l) Taxes on income The deferred tax assets and liabilities recognized In addition, deferred tax assets are formed for losses under IFRS derive from timing differences between carried forward under IFRS. As a basic rule, deferred individual company valuations reported for tax tax assets are recognized only if evidence is available purposes and those reported under IFRS, as well as that sufficient taxable income will be available in the from consolidation measures that are recognized in future. profit and loss. It should also be noted that generally deferred taxes have been recognised on the effects Under HGB, no deferred tax assets were recognised arising from the transition from HGB to IFRS. on either timing differences or for losses carried forward. m) Other non-current Other non-current capital provided by shareholders insofar as put options exist. For more information, see capital provided includes minority shares in the capital stock of Ger- the section on significant accounting and valuation by shareholders man limited companies as well as incorporated firms, policies.

Reconciliation of the HGB IFRS Cash Flow Statement 2004/2005 2004/2005 EUR in thousands

Cash flow from operating activities 180 855 193 684 Cash flow from investing activities (228 974) (287 958) Cash flow from financing activities (45 567) (41 922)

Total cash flow (93 686) (136 196)

Exchange rate movements, valuation adjustments and changes in group structure 28 572 7 992 Cash and cash equivalents at the beginning of the period 1 000 358 700 635 Cash and cash equivalents at end of the period 935 244 572 431

The changes in the consolidated cash flow statement current assets from cash and cash equivalents to are due to differences in presentation under HGB and investing activities under IFRS, to the distribution of IFRS. currency translation effects across the corresponding items in the consolidated cash flow statement, and Essentially, these differences are attributable to to the capitalization of development expenditure in the reclassification of marketable securities held as accordance with IFRS. 112 Voith AG – Consolidated Financial Report 2005/2006

Notes to the Consolidated Statement of Income

The figures shown under “Systems & Products” The figures for Voith Industrial Services and Others below relate to the Group Divisions Voith Paper, Voith are shown separately under the heading “Services”, Turbo and Voith Siemens Hydro Power Generation. as these Group Divisions mainly comprise service companies.

(1) Sales By Group Division 2005/2006 2004/2005 EUR in thousands

Systems & Products Voith Paper 1 566 961 1 658 109 Voith Turbo 893 485 814 369 Voith Siemens Hydro Power Generation 614 176 586 185

3 074 622 3 058 663 Services Voith Industrial Services 654 459 395 729 Others 9 460 10 882 663 919 406 611

3 738 541 3 465 274

By Region 2005/2006 2004/2005 EUR in thousands

Systems & Products Germany 535 591 558 081 Europe excluding Germany 843 062 958 311 Americas 759 359 748 245 Asia 815 113 652 082 Others 121 497 141 944

3 074 622 3 058 663 Services Germany 364 569 293 200 Europe excluding Germany 134 480 68 981 Americas 158 793 43 704 Asia 6 071 726 Others 6 0

663 919 406 611 Voith Group Germany 900 160 851 281 Europe excluding Germany 977 542 1 027 292 Americas 918 152 791 949 Asia 821 184 652 808 Others 121 503 141 944

3 738 541 3 465 274 Voith AG – Consolidated Financial Report 2005/2006 113

(2) Decrease/Increase 2005/2006 2004/2005 in Inventories and EUR in thousands Capitalized Costs Change in inventory of finished goods and work in progress 46 841 (16 511) Other capitalized costs 44 421 26 043

91 262 9 532

(3) Other Operating 2005/2006 2004/2005 Income EUR in thousands

Income from the use and reversal of provisions 254 293 215 797 Foreign exchange gains 74 769 59 256 Recovered bad-debts 9 959 8 228 Gains on disposal of non-current and current assets 3 319 1 764 Other income 80 579 57 712

422 919 342 757

Gains on disposal of non-current and current assets from the disposal of assets held for sale reported by includes gains of € 479 thousand (previous year: € 0) the Voith Paper Group Division.

(4) Cost of Material 2005/2006 2004/2005 EUR in thousands

Expenditure for raw materials, supplies and purchased goods 1 264 669 1 154 257 Expenditure for purchased services 274 091 220 890

1 538 760 1 375 147

(5) Personnel Expenses 2005/2006 2004/2005 EUR in thousands

Wages and salaries 1 164 941 995 917 Social security, employee benefits and related charges 253 264 226 628

1 418 205 1 222 545 114 Voith AG – Consolidated Financial Report 2005/2006

Number of Employees Annual average 2005/2006 2004/2005 2006-09-30 2005-09-30

Systems & Products Industrial employees 7 009 7 117 7 031 7 055 Salaried employees 9 618 9 475 9 646 9 491 16 627 16 592 16 677 16 546 Services Industrial employees 14 277 9 048 15 196 12 684 Salaried employees 2 060 1 456 2 212 1 604 16 337 10 504 17 408 14 288 Voith Group Industrial employees 21 286 16 165 22 227 19 739 Salaried employees 11 678 10 931 11 858 11 095 Apprentices and trainees 809 647 809 647

33 773 27 743 34 894 31 481

Number of Employees Annual average by Region 2005/2006 2004/2005 2006-09-30 2005-09-30

Systems & Products Germany 7 246 7 233 7 356 7 170 Europe excluding Germany 3 216 3 305 3 192 3 263 Americas 3 996 4 268 3 890 4 238 Asia 1 998 1 635 2 063 1 720 Others 171 151 176 155 16 627 16 592 16 677 16 546 Services Germany 7 464 6 240 8 133 6 461 Europe excluding Germany 4 320 2 787 4 412 3 769 Americas 4 253 1 382 4 517 3 773 Asia 300 95 346 285 16 337 10 504 17 408 14 288 Voith Group Germany 14 710 13 473 15 489 13 631 Europe excluding Germany 7 536 6 092 7 604 7 032 Americas 8 249 5 650 8 407 8 011 Asia 2 298 1 730 2 409 2 005 Others 171 151 176 155

32 964 27 096 34 085 30 834 Voith AG – Consolidated Financial Report 2005/2006 115

(6) Other Operating 2005/2006 2004/2005 Expenses EUR in thousands

Increase in provisions 191 087 231 405 Other selling expenses 274 762 257 548 Other administrative expenses 167 756 171 247 Foreign exchange losses 41 139 32 381 Rent for buildings and machinery 40 157 34 102 Allowances for bad debt 20 222 21 642 Losses on disposal of non-current and current assets 2 210 6 796 Other expenses 137 724 151 589

875 057 906 710

(7) Non-Recurring Non-recurring result includes expenses incurred for Result major restructuring activities and retrenchments.

The table below provides a detailed breakdown of these expenses:

2005/2006 2004/2005 EUR in thousands

Personnel expenses 34 222 – Depreciation 436 – Other expenses 11 840 –

46 498 –

Other expenses consist primarily of write-downs, removal costs, losses on disposals, and legal and consulting fees.

(8) Interest Result 2005/2006 2004/2005 EUR in thousands

Interest and similar income 33 438 37 407 Interest and similar expenses (79 145) (82 398)

(45 707) (44 991) 116 Voith AG – Consolidated Financial Report 2005/2006

(9) Other Financial 2005/2006 2004/2005 Result EUR in thousands

Income from investments 911 1 855 Expense from loss-transfer agreements (319) (479) Write-down of investments in shares (634) (4 802) Write-down of long-term loans 0 (664) Write-down on marketable securities (40) (692) Income from marketable securities and loans 909 1 629 Income from the sale of the associated company DIS AG 112 070 0

112 897 (3 153)

(10) Income Taxes 2005/2006 2004/2005 EUR in thousands

Effective taxes (69 792) (68 410) Deferred taxes (14 712) 3 050

(84 504) ( 65 360)

Effective taxes include domestic income taxes and assets on losses carried forward resulted in deferred comparable foreign income taxes that are calculated tax income of € 4599 thousand (previous year: in accordance with the local tax laws valid for each € 4850 thousand). subsidiary company. As at September 30, 2006 tax losses carried forward For individual temporary Group companies, deferred of € 348712 thousand (previous year: € 295 936 tax items are recognised for differences between thousand) for German corporate taxes, of € 530138 tax reporting and IFRS, as well as for consolidation thousand (previous year: € 444 006 thousand) for measures recognized in profit and loss. Deferred tax German trade tax and € 28 385 thousand (previous assets are also recognized for tax losses carried for- year: € 35 435 thousand) for foreign taxes, were not ward that can be reasonably expected to be realized recognized as deferred tax assets as there was no in the near future. reasonable expectation that the related deferred tax assets would be realized in the future. A significant Deferred taxes are calculated at the tax rates valid in portion of these tax losses carried forward do not the respective countries. expire. In the current fiscal period € 7 315 thousand (previous year: € 5 599 thousand) of the above In the period under review, deferred tax expenses mentioned tax losses carried forward were realized. arising from temporary differences amounted to € 23 071 thousand (previous year: minus € 5 999 thou- The following table provides a detailed overview of sand). The reversal of write-downs on deferred tax deferred tax items at the balance sheet date: Voith AG – Consolidated Financial Report 2005/2006 117

2006-09-30 2005-09-30 Deferred Deferred Deferred Deferred tax assets tax liabilities tax assets tax liabilities EUR in thousands

Intangible assets 13 845 35 852 14 724 29 665 Property, plant and equipment 5 017 52 232 6 621 55 289 Investments and marketable securities 4 839 8 786 1 383 18 940 Inventories and receivables 34 361 58 364 36 633 58 583 Other assets 15 684 14 146 10 365 15 034 Pension provisions 35 290 6 737 35 949 4 174 Financial liabilities 6 755 8 854 12 518 10 025 Other provisions and liabilities 68 829 15 409 83 989 13 306 Write down on deferred tax assets arising from temporary differences (2 252) (6 932) Tax losses carried forward 37 390 29 202 Netting (102 641) (102 641) (107 203) (107 203)

In Balance Sheet 117 117 97 739 117 249 97 813

Reconciliation of expected and actual tax expenses: tax expenses in the period under review were calculated based on a tax rate of 38.65% (unchanged from The income of Voith AG and its subsidiaries in Germa the previous year), which takes into account the ny is subject to corporation income tax and trade tax. structure of the Voith Group. Profits earned outside Germany are taxed at the current rates valid in the countries concerned. Expected

2005/2006 2004/2005 EUR in thousands

Income before taxes 330 379 161 917 Expected tax expenses 127 691 62 581 Deviations from expected tax rates (16 561) (12 015) Effects of changes in tax rates 1 929 266 Tax-free income (59 718) (12 733) Non-deductible expenses 12 360 10 018 Taxes relating to other reporting periods 2 493 4 368 Change in write-downs on deferred tax assets 13 475 10 329 Other tax effects 2 835 2 546 Taxes on Income 84 504 65 360

Effective tax rate (%) 25.6% 40.4%

Deferred taxes of € 10141 thousand (previous year: recognized in the balance sheet since the pre € 7120 thousand) relating to temporary differences requisites in IAS 12.39 were met. arising on investments in subsidiaries were not 118 Voith AG – Consolidated Financial Report 2005/2006

Notes to the Consolidated Balance Sheet

(11) Intangible Assets Development of Intangible Assets from 2004-10-01 to 2005-09-30

Franchises, trademarks, patents, licenses Advances and similar rights paid for (including licenses Development intangible EUR in thousands to such rights) Goodwill costs assets Total

Cost as at 2004-10-01 66 088 310 538 13 268 557 390 451

Changes in group structure 1 947 74 669 0 0 76 616 Currency translation differences (1 338) 1 390 0 (389) (337) Additions 8 010 0 8 263 35 16 308 Disposals (4 568) 0 0 0 (4 568) Transfers 328 0 0 (151) 177

Cost as at 2005-09-30 70 467 386 597 21 531 52 478 647

Accumulated depreciation as at 2004-10-01 (49 373) (53 003) (130) 0 (102 506)

Changes in group structure (1 281) 0 0 0 (1 281) Currency translation differences 583 0 0 0 583 Current depreciation (8 345) 0 (2 769) 0 (11 114) Disposals 4 640 0 0 0 4 640 Transfers (43) 0 0 0 (43)

Accumulated depreciation as at 2005-09-30 (53 819) (53 003) (2 899) 0 (109 721)

Carrying amount as at 2005-09-30 16 648 333 594 18 632 52 368 926 Voith AG – Consolidated Financial Report 2005/2006 119

Development of Intangible Assets from 2005-10-01 to 2006-09-30

Franchises, trademarks, patents, licenses Advances and similar rights paid for (including licenses Development intangible EUR in thousands to such rights) Goodwill costs assets Total

Cost as at 2005-10-01 70 467 386 597 21 531 52 478 647

Changes in group structure 1 125 26 202 0 8 27 335 Currency translation differences (336) (1 277) 0 (2) (1 615) Additions 7 630 0 11 500 55 19 185 Disposals (3 887) 0 0 0 (3 887) Transfers 1 581 0 0 (29) 1 552

Cost as at 2006-09-30 76 580 411 522 33 031 84 521 217

Accumulated depreciation as at 2005-10-01 (53 819) (53 003) (2 899) 0 (109 721)

Changes in group structure (542) 0 0 0 (542) Currency translation differences 210 0 0 0 210 Current depreciation (8 519) (1 176) (4 095) 0 (13 790) Disposals 3 543 0 0 0 3 543 Transfers (592) 0 0 0 (592)

Accumulated depreciation as at 2006-09-30 (59 719) (54 179) (6 994) 0 (120 892)

Carrying amount as at 2006-09-30 16 861 357 343 26 037 84 400 325

The increase in goodwill is explained in the note The impairment was based on value-in-use calcu “Acquisitions of subsidiaries”. lations derived from estimates of the future earnings position. An after-tax interest rate of 10.5% was The following impairment losses were recognized in used to calculate the present value of future net cash respect of goodwill on the basis of impairment tests inflows. performed: Fiscal year 2004/05 and fiscal year 2005/06: IFRS opening balance sheet as at 2004-10-01: No impairment losses on goodwills were effected. An impairment loss on goodwill of € 53 million was recognized relating to the Group Division Voith Industrial Services. 120 Voith AG – Consolidated Financial Report 2005/2006

(12) Property, Plant Development of Property, Plant and Equipment from 2004-10-01 to 2005-09-30 and Equipment Land, leasehold Advance rights and buil- Technical Fixtures, payments dings (including equipment, furniture and cons- buildings on third- plant and and office truction in EUR in thousands party land) machinery equipment progress Total

Cost as at 2004-10-01 495 481 1 070 349 349 676 30 214 1 945 720

Changes in group structure 9 686 12 688 7 639 166 30 179 Currency translation differences 3 971 (1 692) (8 926) (1 898) (8 545) Additions 33 317 43 050 47 366 51 247 174 980 Disposals (16 917) (80 557) (44 886) 0 (142 360) Transfers 8 379 8 940 8 972 (26 468) (177)

Cost as at 2005-09-30 533 917 1 052 778 359 841 53 261 1 999 797

Accumulated depreciation as at 2004-10-01 (238 690) (748 685) (264 706) 0 (1 252 081)

Changes in group structure (3 026) (7 749) (3 360) 0 (14 135) Currency translation differences (10 891) 15 330 10 589 0 15 028 Current depreciation (11 906) (56 012) (32 913) 0 (100 831) Disposals 2 416 66 294 28 414 0 97 124 Transfers 62 6 313 (6 332) 0 43

Accumulated depreciation as at 2005-09-30 (262 035) (724 509) (268 308) 0 (1 254 852)

Carrying amount as at 2005-09-30 271 882 328 269 91 533 53 261 744 945 Voith AG – Consolidated Financial Report 2005/2006 121

Development of Property, Plant and Equipment from 2005-10-01 to 2006-09-30

Land, leasehold Advance rights and buil- Technical Fixtures, payments dings (including equipment, furniture and cons- buildings on third- plant and and office truction in EUR in thousands party land) machinery equipment progress Total

Cost as at 2005-10-01 533 917 1 052 778 359 841 53 261 1 999 797

Changes in group structure 4 576 11 261 6 516 463 22 816 Currency translation differences (5 961) (15 803) (2 217) (536) (24 517) Additions 18 859 64 295 39 153 25 350 147 657 Disposals (5 761) (40 571) (34 784) (347) (81 463) Transfers 18 886 19 812 6 419 (46 669) (1 552)

Cost as at 2006-09-30 564 516 1 091 772 374 928 31 522 2 062 738

Accumulated depreciation as at 2005-10-01 (262 035) (724 509) (268 308) 0 (1 254 852)

Changes in group structure (99) (1 854) (967) 0 (2 920) Currency translation differences 1 799 11 568 2 292 0 15 659 Current depreciation (12 409) (57 089) (35 015) 0 (104 513) Disposals 5 113 40 072 32 631 0 77 816 Transfers (1 049) 3 707 (2 066) 0 592

Accumulated depreciation as at 2006-09-30 (268 680) (728 105) (271 433) 0 (1 268 218)

Carrying amount as at 2006-09-30 295 836 363 667 103 495 31 522 794 520

Impairment losses of € 1386 thousand were recog- The advance payments and construction in progress nized during the year of which a significant portion relate to the following assets: € 7850 thousand for related to machinery (previous year: € 1661 thou- buildings (previous year: € 34067 thousand); € 18 787 sand). Of this amount, impairment losses totaling thousand for technical equipment, plant and machin- € 436 thousand (previous year: € 0) were recognized ery (previous year: € 17537 thousand); and € 4 885 in non-recurring result in profit and loss. The signifi- thousand for non-production equipment (previous cant amounts were recognized in the Group Divisions year: € 1657 thousand). Voith Turbo and Voith Paper. 122 Voith AG – Consolidated Financial Report 2005/2006

Property, plant and equipment includes the following assets:

Finance leases 2006-09-30 2005-09-30 EUR in thousands

Land 5 683 5 912 Technical equipment, plant and machinery 829 854 Fixtures, furniture and office equipment 1 917 1 454 8 429 8 220

Buildings, plant, machinery and office and other was realized in profit and loss relating to leased equipment classified as finance leases are stated assets. under this item. The corresponding leasing liabilities are shown as financial liabilities. Depreciation of No contingent rents were recognized in profit and € 1 103 thousand (previous year: € 1 397 thousand) loss.

(13) Investments Development of Investments in Associated Companies/Other Investments from 2004-10-01 to 2005-09-30 in Associated Investments Companies/Other in associated Other Long-term Investments EUR in thousands companies investments loans Total

Cost as at 2004-10-01 71 822 53 317 8 758 133 897

Changes in group structure 0 (2 596) 436 (2 160) Currency translation differences 0 (1 020) 52 (968) Additions 42 029 5 851 2 904 50 784 Disposals (16 338) (97) (5 593) (22 028) Transfers 21 801 0 0 21 801

Cost as at 2005-09-30 119 314 55 455 6 557 181 326

Accumulated depreciation as at 2004-10-01 0 (25 090) (2 718) (27 808)

Changes in group structure 0 (257) (257) Currency translation differences 0 353 (42) 311 Current depreciation 0 (4 802) (664) (5 466) Disposals 0 0 2 694 2 694

Accumulated depreciation as at 2005-09-30 0 (29 796) (730) (30 526)

Carrying amount as at 2005-09-30 119 314 25 659 5 827 150 800

The amount stated under transfers relates to the initial treatment as an associated company applying in the equity method. Voith AG – Consolidated Financial Report 2005/2006 123

Development of Investments in Associated Companies/Other Investments from 2005-10-01 to 2006-09-30

Investments in associated Other Long-term EUR in thousands companies investments loans Total

Cost as at 2005-10-01 119 314 55 455 6 557 181 326

Changes in group structure (9 039) (5 779) 0 (14 818) Currency translation differences 0 6 (384) (378) Additions 41 986 17 624 3 438 63 048 Disposals (98 860) (3 823) (1 215) (103 898) Transfers 55 0 55

Cost as at 2006-09-30 53 401 63 538 8 396 125 335

Accumulated depreciation as at 2005-10-01 0 (29 796) (730) (30 526)

Currency translation differences 0 8 168 176 Current depreciation 0 (634) 0 (634) Disposals 0 2 838 (53) 2 785

Accumulated depreciation as at 2006-09-30 0 (27 584) (615) (28 199)

Carrying amount as at 2006-09-30 53 401 35 954 7 781 97 136

Aggregated key financial figures for the associates accounted for using the equity method:

GBH DIS Hörmann 2006-09-30 2005-09-30 2005-09-30 2006-09-30 EUR in thousands

Equity 185 316 167 023 52 275 16 174 Liabilities 189 787 192 833 52 888 38 556

Total Equity and Liabilities 375 103 359 856 105 163 54 730

Sales 46 771 48 179 296 385 141 138 Net income 15 404 11 926 21 804 2 587

No. of shares (in thousands) 1 807 1 807 2 918 – Share price (in EUR) 41.70 33.00 44.00 – Fair value 75 352 59 631 128 392 – 124 Voith AG – Consolidated Financial Report 2005/2006

(14) Inventories Inventories consist of the following:

2006-09-30 2005-09-30 EUR in thousands

Raw materials and supplies 179 248 160 758 Work in progress 221 709 182 036 Finished goods and merchandise 126 364 121 951 Payment in advance to suppliers 90 542 81 895

617 863 546 640

Inventories totaling € 200 299 thousand were stated the IFRS) totaling € 4925 thousand (previous year: at their net realizable value (previous year: € 3 602 thousand) were effected. These amounts are € 157466 thousand). included in the cost of materials.

Impairments on inventories amounted to € 63 936 Inventories with a carrying amount of € 3 133 thousand (previous year: € 58230 thousand) and thousand are pledged as securities (previous year: were recognized as expenses. Write-ups (allowed by € 2 502 thousand).

(15) Trade Trade receivables consist of the following: Receivables 2006-09-30 2005-09-30 EUR in thousands

Trade receivables 675 649 628 123 Write-downs on receivables (53 098) (46 292) Receivables from long-term construction contracts 191 870 184 306

814 421 766 137

Trade receivables are classified as current assets. Credit risk is used to manage default risk in trade As of September 30th, 2006 and 2005, respectively receivables. In particular Hermes cover is used to € 69051 thousand and € 14 723 thousand of trade secure foreign customers. receivables are not expected to be collected within one year. The receivables recognized using the percentage-of- completion method relating to long term construction Trade receivables amounting to € 6 495 thousand contracts are determined as follows: (previous year: € 2808 thousand) are interest- bearing. Voith AG – Consolidated Financial Report 2005/2006 125

2006-09-30 2005-09-30 EUR in thousands

Aggregate amount of costs incurred and profits/losses incurred on projects in progress (cumulative): 1 528 415 1 339 807 Progress billings to date (668 897) (479 606)

Gross amount due from customers 859 518 860 201 Advances received (“progress billings”) (674 217) (675 895)

185 301 184 306 thereof receivables from long-term construction contracts 191 870 184 306 thereof liabilities from long-term construction contracts (6 569) –

Advances received amounting to € 93129 thousand € 1045 559 thousand). Amounts billed to customers (previous year: € 101795 thousand) for which are shown under trade receivable. no contract costs have been incurred to-date are included in liabilities. An amount of € 7 419 thousand (previous year: € 1 616 thousand) in trade receiveable is held as Sales relating to long-term construction contracts retentions by customers. Retentions are amounts totaled € 867004 thousand (previous year: of progress billings which are not paid until the satis faction of conditions specified in the contract.

(16) Other Receivables 2006-09-30 2005-09-30 and Assets EUR in thousands

Financial derivatives with hedged operational transactions 27 759 63 659 Financial derivatives with hedged financial transactions 14 133 9 334 Other financial receivables 31 681 18 607 Prepaid expenses 17 764 18 029 Other assets 137 888 151 759

229 225 261 388

Since a significant portion of the other financial receivables are subject to variable interest rates, their market values are largely equivalent to their carrying amounts. 126 Voith AG – Consolidated Financial Report 2005/2006

(17) ) Marketable This item consists primarily of available-for-sale Marketable securities are held primarily to safe-guard Securities securities totaling € 141316 thousand (previous year: liquidity. Bonds and stocks, for which market rates are € 272336 thousand). The year-on-year decline is due available, account for the major portion of securities to the disposal of some marketable securities. In this held. A “non-interest-bearing” German federal trea- context, € 6193 thousand was transferred from equity sury bill with a market value of € 98 509 thousand and and recognized in profit and loss in the current period. a maturity of 6 months accounts for the major portion of the bonds held as at the balance sheet date. The previous year’s figures contained assets amounting to € 57628 thousand that were recognized at fair In the previous year, most of the stocks and bonds value through profit and loss and that, owing to fact held under this item were invested in special funds. that the option to exercise the fair value option being Of these, the bonds consist of public bonds as well realized, was made use of resulted in income of as bank and corporate bonds in Europe. The maturity € 6664 thousand beeing realized. A further € 1 346 dates lie between 2005 and 2018 and the interest thousand was realized as income in the current period rates between 2.0 % to 8.0 %. The bonds and stocks on disposal of these securities. can be sold at any time.

(18) Cash and Cash This item mainly consists of time deposits held at banks. Equivalents 2006-09-30 2005-09-30 EUR in thousands

Checks 662 12 150 Cash in hand 1 035 1 237 Notes receivable 1 881 1 824 Cash at banks 301 251 557 220

304 829 572 431

Cash at banks earns interest at floating rates based Major deposits in the previous year totaled USD 325 on daily bank deposit rates. Short-term deposits are million and bore interest at a rate of 3.58%. These made for varying periods of between one day and deposits were used to repay bonds in the fiscal year three months depending on the immediate cash 2005/06. requirements of the Group, and earn interest at the respective short-term deposit rates. The fair value of cash and cash equivalents is € 304 829 thousand (previous year: € 572 431 thousand).

(19) Non-Current Assets Non-current assets held for sale totaling € 2034 In the previous year, non-current assets held for sale held for sale thousand related to property, plant and equipment at totaling € 691 thousand were also recognized for the Voith Paper Service Northeast, Inc., which was sold in companies Voith Paper Rolls South, Inc. and Voith fiscal year 2005/06. Paper Rolls, Inc. relating to the sale of property, plant and equipment at the Voith Paper Service South, Inc. production facility. Voith AG – Consolidated Financial Report 2005/2006 127

(20) Equity and Other Capital and revenue reserves Voith AG’s own shares pursuant to Section 237 Non-Current Capital The revenue reserves consist of retained earnings Paragraph 3 Item 3 of the German Stock Corpora- provided by generated by Voith AG and its consolidated subsidi- tion Act (AktG). The retirement of these shares has Shareholders aries. been completed. In the course of this transaction, the preference shares were converted to ordinary shares. As at September 30, 2004, and as at September 30, The Group thus had 30149 100 ordinary shares out- 2005, Voith AG’s subscribed capital of € 120 000 standing as at September 30, 2006. thousand was held by shareholders in the form of 21500000 ordinary shares and 18 500 000 preference Other Reserves shares. The preference shares had no voting rights Other reserves include the effects of the currency but entitled the bearer to preferential dividend claims. translation of foreign subsidiaries, the effects of the valuation of marketable securities and cash flow An amount of € 129154 thousand was reported in hedges (pursuant to IAS 39) and gains on the hedging fiscal year 2005/06 relating to the purchase of of net investments (pursuant to IAS 21).

The table below lists the components of Other Reserves:

2006-09-30 2005-09-30 2004-10-01 EUR in thousands

Unrealized gains 14 201 42 007 16 140 Market valuation of marketable securities 4 675 13 115 7 221 Cash flow hedges 8 131 30 288 8 919 Other unrealized gains 1 395 (1 396) 0

Foreign exchange differences 30 061 48 935 5 381 Currency translation 19 245 34 380 0 Hedging of net investments 10 816 14 555 5 381

Deferred taxes on items recognized directly in equity (7 119) (18 021) (3 354)

Minority interests 432 (539) 468 Non-current capital (5 568) (11 457) 138 Other Reserves 32 007 60 925 18 773

Other unrealized gains relate to amounts realised Other non-current capital provided by shareholders directly in equity in accounting for associated com Other non-current capital provided by shareholders panies unter the Equity Method. includes shares held by other shareholders in the equity of German limited partnerships and of incorpo- Minority Interests rated firms, insofar as put options exist. A significant The major portion of minority interests are attributed portion of this amount is attributable to the co-owners to the co-owners of the companies Rif Roll Cover Srl, of Voith Siemens Hydro Power Generation GmbH & Italy, Voith Fuji Hydro K.K., Japan, Voith IHI Paper Co. KG and DIW Deutsche Industriewartung AG. The Technology Co, Ltd., Japan, and Porrits & Spencer outside shareholders of Voith Paper Holding GmbH & (Asia), Ltd., India. Co. KG withdrew in fiscal year 2005/06.

128 Voith AG – Consolidated Financial Report 2005/2006

Appropriation of net income at Voith AG The Board of Management proposes that a dividend The dividend of € 40 098 thousand paid in the period of € 0.33 per share (€ 9949 thousand in total) be paid under review (previous year: € 20000 thousand) was out of the unappropriated retained earnings of Voith equivalent to a dividend of € 1.33 per share (previous AG, and that the remaining € 86384 thousand be car- year: € 0.50). ried forward to the current fiscal year.

(21) Pension Provisions Provisions for pensions are recognized for benefits provisions for defined benefit plans are determined and Similar Obligations in the form of retirement, invalidity and dependents’ in accordance with IAS 19 (Employee Benefits) using benefits payable under pension plans. The benefits the projected unit credit method, under which the provided by the Group vary depending on the legal, future obligations are measured based on the ratable tax and economic circumstances of the country con- benefit entitlements earned as of the balance sheet cerned and usually depend on the length of service date. Measurement reflects assumptions as to the and remuneration of the employees. trends in the relevant variables affecting the level of benefits. All defined benefit plans require actuarial Group companies provide occupational pensions valuations. under both defined contribution and defined benefit plans. In the case of defined contribution plans, the Owing to their benefit character, in particular the company makes contributions to state or private pen- obligations of the US Group companies in respect of sions schemes based on legal or contractual require- postretirement medical care are also under provisions ments or on a voluntary basis. Once the contributions for pensions. These post-retirement benefit provi- have been paid, there are no further obligations for sions take into account the expected long-term rise in the company. Current contributions are recognized as the cost of healthcare. pension expenses in the period concerned. In 2006, they amounted € 70793 thousand in the Group (previ- Insofar that foreign Group companies have plan ous year: € 64878 thousand). assets, these consist of stocks, fixed-interest bonds and real estate. Insurance cover forms the plan Defined Benefit Plans make up the major portion of assets of domestic companies. The plan assets of the the pension plans whereby a differentiation between Group companies do not include any shares of Voith funded and unfunded plans are made. The pension AG.

The following amounts related to defined benefit plans are recognized in the balance sheet:

2006-09-30 2005-09-30 EUR in thousands

Present value of funded obligations 285 455 187 830 Fair value of plan assets (137 199) (137 751) Shortfall 148 256 50 079 Present value of unfunded obligations 304 331 384 127 Unrecognized actuarial gains and losses (51 406) (29 958) Unrecognized past service costs – – Provision in the balance sheet 401 181 404 248 Thereof: non-current 19 076 11 322 Voith AG – Consolidated Financial Report 2005/2006 129

The present value of the defined benefit obligation comprises of the following:

2006-09-30 2005-09-30 EUR in thousands

Defined benefit obligation at the beginning of the period 571 957 527 448

Current service costs 12 112 9 776 Interest expenses (pursuant to IAS 19) 25 874 27 103 Actuarial losses 20 477 34 131 Past service costs 310 (2 048) Changes in group structure 148 500 Plan curtailments or settlements 340 393 Benefits paid (34 807) (30 908) Other 985 (830) Currency translation differences (7 610) 6 392

Defined benefit obligation at the end of the period 589 786 571 957

The development of plan assets is shown in the table below:

2006-09-30 2005-09-30 EUR in thousands

Fair value of plan assets at the beginning of the period 137 751 116 884

Expected return on plan assets 9 786 8 262 Actuarial gains(+)/losses(-) (672) 4 174 Contributions 7 850 13 875 Changes in group structure 73 0 Benefits paid (12 551) (10 852) Currency translation differences (5 038) 5 408

Fair value of plan assets at the end of the period 137 199 137 751

The actual return on plan assets amounted to € 9 114 of securities held in the portfolio. These forecasts are thousand (previous year: € 12436 thousand). based on yield expectations for comparable pension funds for the remaining service period (investment The expected long-term interest yield on fund assets horizon) and on experience gathered by the manag- is calculated based on the portfolio’s actual long-term ers of large portfolios and experts in the investment yields, on historical returns in the market as a whole, industry. and on forecasts of probable returns on the classes 130 Voith AG – Consolidated Financial Report 2005/2006

Plan assets consist of the following components:

2006-09-30 2005-09-30 in %

Stocks 49% 48% Bonds 34% 37% Real estate 5% 4% Other 12% 11%

100% 100%

Actuarial gains and losses are the result of changes income and pensions and changes in interest rates) in portfolios and in actual trends (e.g. increases in that differ from underlying assumptions.

The following amounts are recognized in profit and loss:

2006-09-30 2005-09-30 EUR in thousands

Current service costs 12 112 9 776 Interest expenses on pension obligations 25 874 27 103 Expected return on plan assets (9 786) (8 262) Past service costs 310 (2 048) Gains on plan curtailments or settlements 340 393 Realized actuarial gains or losses 109 –

Current service costs, past service costs, the effects gains and losses that relate to the plan assets are of plan curtailments or settlements and realized actu- recognized under other operating expenses. arial gains and losses that relate to the defined benefit obligation are stated under personnel expenses. Interest expenses on pension obligations are stated Expected return on plan assets and realized actuarial in the interest result.

The following assumptions underly Voith Group’s calculation of pension provisions:

Germany & Austria USA 2006-09-30 2005-09-30 2006-09-30 2005-09-30 in %

Discount rate 4.75 % 4.5 % 5.75 % 5.5 % Expected return on plan assets 5.00 % 5.0 % 8.00 % 7.5 % Salary increases 2.00 % 2.0 % 1.50 % 4.0 % Pensions increases 1.50 % 1.5 % 0.00 % 0.0 % Annual increase in healthcare costs – – 7.00 % 6.0 % Voith AG – Consolidated Financial Report 2005/2006 131

Experience adjustments – i.e. the effects of deviations between previous actuarial assumptions and what has actually occured. The effects are shown in the table below:

2006-09-30 2005-09-30 in %

Difference between projected assumptions and actual values: (+ gains/- losses) - as a percentage of the present value of the defined benefit obligations (0.5 %) +2.8 % - as a percentage of the fair value of plan assets (0.5 %) +3.0 %

(22) Other Provisions The development of other provisions is shown below:

Balance Changes in Currency Balance as at the group Discounting translation as at 2005-09-30 structure Utilization Additions Reversals Transfers effects differences 2006-09-30 EUR in thousands

Personnel-related provisions 101 674 1 600 (25 582) 31 450 (12 806) 0 (63) (836) 95 437 Other tax provisions 4 697 29 (2 181) 4 410 (2 282) (59) 0 (146) 4 468 Warranty provisions 234 795 1 374 (57 458) 94 455 (75 676) 101 418 (1 400) 196 609 Other order-related provisions 148 135 2 095 (54 905) 67 377 (45 297) (101) 589 (985) 116 908 Other provisions 46 663 4 230 (12 724) 47 722 (14 708) 59 39 (422) 70 859

535 964 9 328 (152 850) 245 414 (150 769) 0 983 (3 789) 484 281

2006-09-30 2005-09-30 < 1 Year > 1 Year < 1 Year > 1 Year EUR in thousands

Personnel-related provisions 29 608 65 829 42 039 59 635 Other tax provisions 2 735 1 733 2 935 1 762 Warranty provisions 145 233 51 376 172 356 62 439 Other order-related provisions 108 053 8 855 134 830 13 305 Other provisions 60 200 10 659 42 378 4 285

345 829 138 452 394 538 141 426 132 Voith AG – Consolidated Financial Report 2005/2006

Early retirement and jubilee/long service provisions on customer orders, for service contracts as well as comprise the major portion of the personnel-related for commission provisons. Other provisions include provisions. Warranty provisions are accrued for items such as obligations arising from retrenchments statutory and contractual obligations as well as for and restructuring measures. The latter activities are extended warranty. Other order-related provisions expected to be completed within the next two fiscal include obligations for services still to be rendered periods.

(23) Financial Liabilities Voith AG’s financial liabilities include the following:

2006-09-30 2005-09-30 EUR in thousands

Bonds 400 949 730 423 Bank loans 131 823 223 177 Lease liabilities 6 552 7 063 Notes payable 5 007 618 Financial derivatives with hedged financial transactions 3 978 111 Other financial liabilities 73 530 50 657

621 839 1 012 049

In the current period non of the liabilities are secured Since the major portion of financial liabilities are by mortgages (previous year: € 2312 thousand). subject to variable interest rates the market value and Liabilities amounting to €1094 thousand (previous book value are similar. year: € 7848 thousand) are secured by other assets.

The Group’s financial liabilities have the following maturities:

2006-09-30 2005-09-30 EUR in thousands

Under 1 year 190 939 456 532 1 to 5 years 165 363 78 672 Over 5 years 265 537 476 845

621 839 1 012 049 Voith AG – Consolidated Financial Report 2005/2006 133

The Voith Group’s current and non-current bonds and other liabilities due to banks are denominated in the following currencies:

2006-09-30 2005-09-30 EUR in thousands

Euros 162 187 578 311 US Dollars 346 728 362 462 Japanese Yen 11 790 7 706 Other currencies 12 067 5 121

532 772 953 600

Interest-bearing loans Carrying amount Carrying amount Effective at 2006-09-30 at 2005-09-30 interest rate (%) Maturity EUR in thousands EUR in thousands

Current EURIBOR EUR 300 million bond, 1999-2006 +2.65%* 2006-09-29 0 265 323 Bay. Hypo- und Vereinsbank, USD LIBOR 2-month USD loan +0.3% revolving 35 604 37 461 Hessische Landesbank USD LIBOR 2-month USD loan +0.3% revolving 23 736 24 961 LBBW, USD LIBOR 2-month USD loan +0.3% revolving 11 868 12 459 EURIBOR EUR loan in the USA +0.65% Dec. 2009 0 13 741 ÖKB Export credit less 3.8% Indefinite 0 13 081 JPY loan 0.5-0.8% Indefinite 8 690 4 976 USDIBOR Loan +0.5% 2006-12-29 7 889 9 129 USD loan 4.60% 2005-12-29 0 7 469 USD loan 6M-Libor 2007-03-31 4 689 1 829 EURIBOR LBBW loan +0.25% Indefinite 2 800 0 Commerzbank, JPY loan 1% Indefinite 2 775 2 342 EURIBOR Commerzbank +0.25% Indefinite 0 1 241 Others 16 833 13 570

Total 114 884 407 582

* Including the effect of related interest rate swaps 134 Voith AG – Consolidated Financial Report 2005/2006

Carrying amount Carrying amount Effective as at 2006-09-30 as at 2005-09-30 interest rate (%) Maturity EUR in thousands EUR in thousands

Non-current EURIBOR EUR 200 million bond, 2001-2011 +1.65%* 2011-07-18 146 322 190 747 USD LIBOR in USD 180 million private placement, arrears first tranche, 2004-2014 +0.785%* 2014-08-17 141 553 152 265 USD LIBOR in USD 85 million private placement, arrears second tranche, 2004-2016 +0.94%* 2016-08-17 66 533 71 739 USD LIBOR in USD 60 million private placement, arrears third tranche, 2004-2019 +1.145%* 2019-08-17 46 541 50 349 EURIBOR EUR loan in the USA +0.65% Dec. 2009 0 67 269 variable, Industrial revenue bond currently 3.8% 2017-01-01 6 038 6 349 variable, Industrial revenue bond currently 3.8% 2009-06-01 6 038 6 349 Others 4 863 951

Total 417 888 546 018

532 772 953 600

* Including the effect of related interest rate swaps

The loans and credit facilities listed above are not The bonds and the USD-denominated private place- secured. ment all have bullet maturities. Within the framework of a tender, parts of the loan due to mature in 2006 The loans originally due in 2009 were repaid prematu- were repaid in October 2005. In the course of fiscal rely in fiscal year 2005/06. Repayment was originally year 2005/06, parts of the 2001-2011 bond were also scheduled in eight annual or 16 semi-annual install- repaid. ments after a two-year exemption. Voith AG – Consolidated Financial Report 2005/2006 135

The finance lease liabilities are repaid over the contractual lease period. The maturity of finance lease liabilities as at the balance sheet date is shown below:

2006-09-30 2005-09-30 EUR in thousands

Total future minimum lease payments (gross) 7 626 8 227 Under 1 year 1 227 1 061 1 to 5 years 2 693 3 305 Over 5 years 3 706 3 861

Present value of future minimum lease payments 6 552 7 063 Under 1 year 1 097 943 1 to 5 years 2 381 2 946 Over 5 years 3 074 3 174

Interest component of future minimum lease payments 1 074 1 164

(24) Trade Accounts 2006-09-30 2005-09-30 Payable/Other EUR in thousands Liabilities Trade accounts payable 290 918 251 264 Liabilities from long term construction contracts 6 569 0 Financial derivatives with hedged operational transactions 4 804 14 550 Personnel and social security liabilities 163 561 152 554 Tax liabilities 82 779 82 541 Customer advances received 372 727 299 624 Deferred income 17 753 16 360 Other liabilities 169 220 154 057

1 108 331 970 950

Non of the trade accounts payable are secured by At the end of fiscal year 2005/06, personnel and other assets in the current period (previous year: € 884 social security liabilities included outstanding vacation thousand). Interest is payable on € 1 856 thousand of benefits, overtime annual bonus payments and unpaid trade accounts payable (previous year: € 0). € 2 621 wages, salaries and social security contributions. thousand (previous year: € 2 560 thousand) of trade Sales tax (VAT) liabilities, whose fair value essentially accounts payable is payable after 12 months. corresponds to the carrying amount, formed the main item in tax liabilities. 136 Voith AG – Consolidated Financial Report 2005/2006

Notes to the Consolidated Cash Flow Statement

Cash flow from operating activities includes interest Other transactions with banks resulted in a net repay- income of € 37119 thousand (previous year: € 30654 ment of debts of € 4441 thousand. In the period under thousand) and interest expenses of € 68675 thousand review, movements in marketable securities included (previous year: € 61996 thousand). cash inflows of € 231 429 thousand and cash outflows of € 99 430 thousand. In the fiscal year 2004/05, this Cash payments for income taxes totaled € 61900 item consisted primarily of cash outflows for the pur- thousand (previous year: € 52 127 thousand). chase of marketable securities.

In fiscal year 2005/06, changes in bonds/bank loans Information relating to the acquisition of consolidated comprised the repayment of bonds totaling € 305900 companies is provided in the section on “Acquisitions thousand and repayment of an additional euro- of subsidiaries”. denominated loan in the amount of € 81 010 thousand. Other transactions with banks resulted in a net Cash and cash equivalents includes checks, notes repayment totaling € 44425 thousand. In the previous receivable, cash in hand and balances in bank year, loans totaling € 49250 thousand were repaid, accounts. while new borrowings totaled € 79526 thousand. Voith AG – Consolidated Financial Report 2005/2006 137

Notes to the Segment Report

Information on the Segment data is essentially compiled using the same Investments include intangible assets and property, segment data accounting and valuation methods as the consoli- plant and equipment. dated financial statements. Intercompany sales are effected at market prices. The regional breakdown of orders received and sales is based on the customer’s domicile. Investments and Segment assets and segment liabilities contain segment assets are assigned to the location at which assets and liabilities that contributed to realizing the they exist or are effected. In line with internal con- operating result in the period under review. trolling and reporting practices, four specific regions To ensure that the figures for each segment remain – Germany, Europe excluding Germany, the Americas comparable, interest-bearing receivables and payab- and Asia – are defined. All other regional activities are les that cannot be assigned to a specific segment are reported under “Other”. not included. Accordingly, income and expenditure arising from these items did not affect the operating result.

Information on activities Voith Paper – is a leading provider of complete Voith Siemens Hydro Power Generation – is a joint in these segments process lines for the papermaking industry. An venture company that combines the strength of two established process supplier to the paper industry leading hydro power component suppliers to create worldwide, Voith has amassed a wealth of experience a leading, full-line supplier for hydro power plants. Its covering everything from fiber technology through key products are Francis, Pelton, Kaplan, bulb and processing to printing technology. Voith develops pump turbines. This Group Division also produces solutions that span the entire papermaking process, generators and generator drive units for all kinds from fiber to finished paper – and that for every type of of turbines, as well as for excitation and diagnostic paper: graphic grades, board, packaging papers, tis- systems, frequency converters, insulation systems, sue paper and special-purpose papers. Voith is also switching systems for all voltages, and transformers. one of the global leading manufacturers of forming fabrics, wet felts, dryer fabrics and press belts for the Voith Industrial Services – is one of the leading world’s cellulose and paper industry. providers of technical, consulting and management services in industrial contexts. Voith Turbo – specializes in mechanical, hydrodynamic and electronic drive and braking systems for road, rail, marine and industrial applications. Voith Turbo crafts customized solutions ranging from individual machines to end-to-end process solutions. 138 Voith AG – Consolidated Financial Report 2005/2006

Voith Group Segment Information by Division

Voith Paper Voith Turbo Voith Siemens Hydro Systems & Products 1) Voith Industrial Services Others Total 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 EUR in millions

External sales 1 567 1 658 894 814 614 586 3 075 3 058 655 396 9 11 3 739 3 465 Sales with other segments 40 41 4 5 3 4 47 50 57 50 (104) (100) 0 0 Total segment sales 1 607 1 699 898 819 617 590 3 122 3 108 712 446 (95) (89) 3 739 3 465 Profit from operations 152 128 86 74 38 37 276 239 20 11 15 (42) 311 208 Goodwill impairment (1) 0 0 0 0 0 (1) 0 0 0 0 0 (1) 0 Operating interest income 2) (3) (2) 0 0 (4) (5) (7) (7) 0 0 0 0 (7) (7) Non-recurring result (38) 0 0 0 0 0 (38) 0 (9) 0 0 0 (47) 0 Segment result 3) 110 126 86 74 34 32 230 232 11 11 15 (42) 256 201 Depreciation on intangible assets and property, plant and equipment 63 62 28 29 10 9 101 100 12 8 5 4 118 112 Share of profits from associates 0 0 0 0 0 0 0 0 0 0 7 9 7 9 Investments 4) 91 119 34 34 12 15 137 168 20 11 10 12 167 191 Investments from newly acquired subsidiaries 3 4 22 12 0 0 25 16 21 73 0 0 46 89 Total investments 94 123 56 46 12 15 162 184 41 84 10 12 213 280 Segment goodwill 210 210 60 49 6 6 276 265 81 69 0 0 357 334 Segment assets 1 390 1 399 616 543 440 437 2 446 2 379 318 213 47 72 2 811 2 664 Investments in associates 0 0 0 0 0 0 0 0 0 9 53 110 53 119 Segment liabilities 976 928 332 291 387 417 1 695 1 636 173 113 126 162 1 994 1 911 Capital employed 5) 850 892 448 403 235 216 1 533 1 511 136 67 54 76 1 723 1 654 Employees 6) 9 977 10 007 4 264 3 958 2 436 2 581 16 677 16 546 16 858 13 737 550 551 34 085 30 834

1) Subtotal for Voith Paper, Voith Turbo and Voith Siemens Hydro. 2) Operating interest income (expenses) from ordinary activities is defined as interest received by the company on the long-term financing of receivables from customers or on that portion of customer advances that is not used to finance inventories and PoC receivables. 3) Segment result according to IAS 14. 4) Excluding goodwill and financial assets. 5) Segment assets (excluding goodwill, incl. set-off of advances received by inventories) less segment liabilities (excluding provisions, accruals and advances received). 6) Statistical number of employees at fiscal year-end. Voith AG – Consolidated Financial Report 2005/2006 139

Segment Information by Region

Orders received External sales Investments Segment assets Voith Group 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 EUR in millions

Germany 841 774 900 851 110 92 1 282 1 133 21 % 24 % 24 % 24 % 66 % 48 % 46 % 42 % Europe excluding 1 073 1 049 978 1 027 26 32 586 611 Germany 26 % 32 % 26 % 30 % 15 % 17 % 21 % 23 % Americas 1 137 646 918 792 20 56 715 722 28 % 20 % 25 % 23 % 12 % 29 % 25 % 27 % Asia 961 645 821 653 10 10 213 180 23 % 20 % 22 % 19 % 6 % 5 % 7 % 7 % Other 84 143 122 142 1 1 15 18 2 % 4 % 3 % 4 % 1 % 1 % 1 % 1 %

Total 4 096 3 257 3 739 3 465 167 191 2 811 2 664

Orders received External sales Investments Segment assets Systems & Products 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 2005/06 2004/05 EUR in millions

Germany 476 475 536 558 93 72 1 057 970 14 % 17 % 17 % 18 % 68 % 43 % 43 % 41 % Europe excluding 939 980 843 958 16 29 517 555 Germany 27 % 34 % 27 % 31 % 12 % 17 % 21 % 23 % Americas 978 603 759 748 17 55 644 657 29 % 21 % 25 % 25 % 12 % 33 % 26 % 27 % Asia 955 645 815 652 10 10 213 179 28 % 23 % 27 % 21 % 7 % 6 % 9 % 8 % Other 84 143 122 142 1 2 15 18 2 % 5 % 4 % 5 % 1 % 1 % 1 % 1 %

Total 3 432 2 846 3 075 3 058 137 168 2 446 2 379 Voith AG – Consolidated Financial Report 2005/2006 141

The segment result can be reconciled to the figures in the consolidated financial statements as follows:

2005/06 2004/05 EUR in millions

Total segment result 256 201

Share of profits from associates 7 9 Interest result (46) (45) Other financial result 113 (3)

Income before tax 330 162

The segment assets and liabilities can be reconciled to the figures in the consolidated financial statements as follows:

2005/06 2004/05 EUR in millions

Total segment assets 2 811 2 664

Financial assets and non-current securities 114 168 Income tax assets 19 17 Financial receivables 45 28 Cash and cash equivalents 429 827 Deferred tax assets 117 117

Total assets 3 535 3 821

Total segment liabilities 1 994 1 911

Financial liabilities 622 1 012 Other non-current capital provided by shareholders 80 99 Income tax liabilities 80 70 Deferred tax liabilities 98 98

Total liabilities and other non-current capital provided by shareholders 2 874 3 190 142 Voith AG – Consolidated Financial Report 2005/2006

Other Information

Contingent Liabilities, Contingent Claims and Other Financial Obligations

Appropriate provisions have been formed in the rel- taxation, court or arbitration proceedings that could evant Group companies to cover contingent liabilities materially influence their economic situation. arising from taxation, court and arbitration proceedings. Neither Voith AG nor any of its consolidated The Voith Group has contingent tax claims totaling companies are involved in any current or foreseeable approximately € 22 million (previous year: € 29 million) outside Germany.

Contingent Liabilities The contingent liabilities listed below are stated at contingencies as the risk of their realization is regard face value. No provisions were formed to cover these ed as low.

2006-09-30 2005-09-30 EUR in thousands

Guarantee obligations 39 482 37 608 Warranties 245 4 660 Assets pledged as security for third-party obligations 3 756 4 789

43 483 47 057

Other Financial In addition to liabilities, provisions and contingent leasing agreements for buildings, land, equipment, Obligations liabilities, the Voith Group also has other financial plant, machinery, and other non-production-related obligations, in particular those arising from rental and tools and equipment.

2006-09-30 2005-09-30 EUR in thousands

Purchasing commitments for capital expenditure 19 713 20 548 Obligations arising from non-cancellable operating rental and leasing agreements 58 246 51 925 Other obligations 6 498 0

84 457 72 473

Assets leased within the framework of operating rental in the period under review. These payments were and leasing agreements led to cash outflows totaling recognized as expenses and mostly related to leased € 40157 thousand (previous year: € 34 102 thousand) vehicles, machinery and buildings. The majority of leases run for between one and ten years. Voith AG – Consolidated Financial Report 2005/2006 143

The maturity of future minimum lease payments for non-cancellable operating rental and leasing agreements is shown below:

2006-09-30 2005-09-30 EUR in thousands

Nominal value of future minimum lease payments Due in under 1 year 22 559 25 402 Due in 1 to 5 years 32 099 20 431 Due in over 5 years 3 588 6 092

58 246 51 925

A negligable amount is expected as sublease cash agreements within the Group. The position „Others“ inflows from assets under operating rental and lease consists essentially of maintenance agreements.

Financial Derivatives Voith is a global player. In the course of its ordinary € 1 million) are hedged individually within the frame- and Financial Assets business, it is therefore exposed to exchange rate work of hedge accounting. Small amounts are hedged and Liabilities and interest rate risks that could affect its assets, collectively. financial and earnings position. Interest rate-related market value risk and cash flow risk Derivative financial instruments are used to limit the Interest rate risks due to valuation fluctuations of risks arising both from operating business and from a financial instrument linked to changes in market the resultant financing requirements. These instru- interest rates exist primarily for medium- to long-term ments are used in accordance with clearly defined, fixed-interest receivables and payables. The Voith uniform, Group-wide guidelines. Compliance with Group’s exposure to interest rate risks is centrally ana- these guidelines is verified on an ongoing basis. lyzed and managed by Corporate Finance. The risk of The Voith Group does not trade in financial deriva- changes in interest rates is hedged on a case-by-case tives. basis in relation to fixed-interest receivables and payables. Interest rate risks are hedged by interest rate Foreign exchange risk swaps and combined interest rate/currency swaps, Foreign exchange risks exist in particular wherever usually in the context of hedge accounting. receivables, liabilities, cash and cash equivalents, orders and (planned) transactions are or will be At present, the Group raises funds essentially by denominated in a currency other than the presenta- drawing on financial instruments with floating interest tion currency of the Group company concerned. rates. The resultant risk to cash flow is contained by For the Voith Group, this happens above all with the entering into interest rate caps. US Dollar. Most foreign exchange risks are recorded and managed centrally by Corporate Finance. These The carrying amounts of those key financial instru- risks are hedged by forward exchange contracts, ments that are exposed to interest rate risks are currency options, currency swaps and combinations grouped by contractually defined maturity in the follow- of interest rate and currency swaps. Major items and ing table: orders on the balance sheet (upward of a value of 144 Voith AG – Consolidated Financial Report 2005/2006

More than Within 1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Total EUR in thousands

2006-09-30 Floating interest rates Cash and cash equivalents 304 829 – – – – – 304 829 Bonds – – – – 146 322 254 627 400 949 Bank loans 114 884 1 739 6 819 781 781 6 819 131 823

2005-09-30 Floating interest rates Cash and cash equivalents 572 431 – – – – – 572 431 Bonds 265 323 – – – – 465 100 730 423 Bank loans 142 259 17 769 16 817 23 166 16 817 6 349 223 177

Risk of default the default risk regarding the Group’s other financial The Voith Group enters into business transactions assets (which consist of cash and cash equivalents, exclusively with recognized, creditworthy third parties. financial assets that are held for sale and certain The Group investigates the creditworthiness of all financial derivatives) is limited to the carrying amount customers who solicit credit-based transactions of the said instruments. This kind of asset loss can with it. In addition, the Group constantly monitors occur if business partners fail to fulfill their contractual outstanding receivables to ensure that it is exposed to obligations. no material risk of default. The Group also takes out The Voith Group is exposed to no material concentra- credit insurance. In the event of counterparty default, tion of default risks.

At fiscal year-end, the following items were outstanding to hedge foreign exchange and interest rate risks:

Negative market Nominal value* Positive market value value 2006-09-30 < 1 Year > 1 Year < 1 Year > 1 Year < 1 Year > 1 Year EUR in thousands

Forward exchange contracts (fair value hedges) 65 801 67 448 5 162 3 779 1 129 25 Forward exchange contracts (cash flow hedges) 26 926 19 877 5 856 5 145 65 – Interest rate swaps (fair value hedges) – 355 927 – 1 576 – 1 931 Other derivatives 145 441 413 227 7 019 13 355 3 000 2 632

Total 238 168 856 479 18 037 23 855 4 194 4 588 Voith AG – Consolidated Financial Report 2005/2006 145

Negative market Face value* Positive market value value 2005-09-30 < 1 Year > 1 Year < 1 Year > 1 Year < 1 Year > 1 Year EUR in thousands

Forward exchange contracts (fair value hedges) 75 198 30 491 2 780 1 453 2 468 1 659 Forward exchange contracts (cash flow hedges) 87 154 53 564 16 133 15 370 632 256 Interest rate swaps (fair value hedges) – 774 195 – 8 303 – – Other derivatives 726 662 364 116 15 514 13 440 4 813 4 833

Total 889 014 1 222 366 34 427 38 566 7 913 6 748

*Nominal value refers to the volume of the hedged transactions in the local currency, translated at the exchange rate on the balance sheet date.

The reported interest rate swaps were concluded to to floating rates. The main terms and conditions hedge the fair value of all bonds. As a result, the fixed agreed for secured bonds and interest rate swaps are interest rates agreed for all bonds were converted identical.

Research and In the fiscal year 2005/06, research and development ous year: € 115 421 thousand) which includes both Development Costs costs totaled € 181907 thousand (previous year: scheduled depreciation on these capitalized develop- € 178 766 thousand). ment expenses and activities for non-customer-specific new developments and improvements, as well as Of this amount, € 11500 thousand (previous year: € 44 499 thousand (previous year: € 55 082 thousand) € 8 263 thousand) was capitalized as development for development activities capitalized in the context of expenditure in the balance sheet. The remaining customer-specific orders. expenses consist of € 125 908 thousand (previ-

Related Party In the course of its ordinary business activities, Voith by withdrawing ordinary shares from the market. As Disclosures AG maintains relationships both with the subsidiaries a result, Voith AG is once again wholly owned by the listed in these consolidated financial statements and founding family. with other related enterprises and individuals (family members who are shareholders, and members of the Members of the Board of Management, members Supervisory Board and the Board of Management). of the Supervisory Board of Voith AG and family members who hold shares in the Group also serve on All business transactions with related enterprises and the supervisory boards of other companies with which individuals are conducted on regular market terms Voith maintains relationships in the course of its ordi- and conditions. nary business activities. Any transactions involving these companies are conducted on the same terms Until fiscal year 2004/05, the majority of shares in and conditions as business with any unrelated third Voith AG were owned by the Voith family. In fiscal year parties. 2005/06, the company bought back its own shares 146 Voith AG – Consolidated Financial Report 2005/2006

The majority of intercompany deliveries and services to related enterprises and individuals are shown in the table below:

2006 2005 EUR in thousands

Services purchased from related parties 2 945 3 722 Services rendered to related parties 10 528 13 350 Receivables from related parties 14 537 17 409 Write-downs on receivables from related parties (3 364) (3 826) Liabilities to related enterprises 29 578 30 044 Liabilities to family members who are shareholders 39 938 30 444

Liabilities to family members who are shareholders Research and development services in the amount include current floating-rate transfer accounts and of € 1502 thousand (previous year: € 221 thousand) pension obligations. were provided and charged to the Group by one related party. Relationships with associates are of minor signifi cance.

Compensation of Remuneration paid to members of the Board of Provisions for pension obligations in respect of for- Governing Bodies Management of Voith AG in fiscal year 2005/06 mer members of the Board of Management totaled totaled € 5203 thousand (previous year: € 5865 € 10 313 thousand (previous year: € 10637 thousand) thousand). This amount includes long-term compen- at the balance sheet date. sation components totaling € 419 thousand (previous year: € 510 thousand). The members of the Supervi- The amount defined in Section 314, Paragraph 1, sory Board received compensation in the amount of item 6 c of the German Commercial Code (HGB) € 363 thousand (previous year: € 303 thousand). stood at € 0 in the fiscal year under review (previous year: € 171 thousand). € 1286 thousand (previous year: € 1194 thousand) was spent on pension and other payments to former members of the Board of Management.

Auditor’s Fees The following fees (including compensation for expenses) were paid to the independent auditor for services and Services rendered in fiscal year 2005/06:

2005/2006 EUR in thousands

Audit of the consolidated financial statements 1 957 Other auditing and valuation services 242 Tax advice 128 Other services 282 2 609

Significant Events Since Grundstücks- und Baugesellschaft Heidenheim AG, the present time, this disposal will generate gains of the End of FiscalYear an associate of Voith AG, was sold effective Novem- around € 35 million. 2005/06 ber 9, 2006. According to the Group’s knowledge at Voith AG – Consolidated Financial Report 2005/2006 147

Heidenheim an der Brenz, January 22, 2007

Voith AG The Board of Management

Dr. Hermut Kormann Dr. Hermann Jung Dr. Hans-Peter Sollinger Dr. Hubert Lienhard Peter Edelmann Martin Hennerici Bertram Staudenmaier Dr. Roland Münch

The Consolidated Financial Statements of Voith AG as at September 30, 2006 have been audited and certified without qualification by Ernst & Young AG Wirtschaftsprüfungsgesellschaft, Stuttgart. 148 Voith AG – Consolidated Financial Report 2005/2006 | The Voith Group and its Shareholdings

The Voith Group and its Shareholdings At 2006-09-30

Name and registered office Capital Share held *) Significant affiliated companies in local currency %

• Voith AG, Heidenheim 120 000 000 EUR

• J.M. Voith GmbH & Co. Beteiligungen KG, Heidenheim 44 600 000 EUR 100.0 • Voith IT Solutions GmbH, Heidenheim 50 000 EUR 100.0 • Voith Assekuranz Vermittlung GmbH, Heidenheim 51 129 EUR 100.0 • Voith Theta GmbH, Heidenheim 50 100 EUR 100.0 • Voith IT Solutions Inc., Wilson (NC)/USA 1 USD 100.0 • Voith IT Solutions GmbH & Co. KG, St. Pölten/Austria 35 000 EUR 100.0

• Voith Paper Holding GmbH & Co. KG, Heidenheim 30 703 300 EUR 100.0

• Voith Paper GmbH & Co. KG, Euskirchen 1 300 000 EUR 100.0 • Voith Paper Automation GmbH & Co. KG, Heidenheim 25 000 EUR 100.0 • Voith Paper GmbH & Co. KG, Heidenheim 36 003 000 EUR 100.0 • Voith Paper Rolls GmbH & Co. KG, Heidenheim 580 000 EUR 100.0 • Voith Paper Technology Center GmbH, Heidenheim 200 000 EUR 100.0 • Voith Paper Fabrics Düren GmbH, Krefeld 270 000 EUR 100.0 • Voith Paper GmbH, Krefeld 603 000 EUR 100.0 • Krieger GmbH & Co. KG, Mönchengladbach 1 587 561 EUR 85.0 • Voith Paper Fabrics GmbH & Co. KG, Pfullingen 500 000 EUR 100.0 • Voith Paper Fiber Systems GmbH & Co. KG, Ravensburg 10 303 134 EUR 100.0 • Voith Paper GmbH & Co. KG, Ravensburg 5 141 000 EUR 100.0 • Voith Paper Karton- und Verpackungspapiere Forschungs GmbH, Ravensburg 5 338 800 EUR 100.0 • Voith Paper Rolls GmbH & Co. KG, Weißenborn 26 000 EUR 100.0 • Voith Paper Argentina S.A., Carapachay - Buenos Aires/Argentina 12 000 ARS 100.0 • Voith Paper Australia and New Zealand Pty. Ltd., North Ryde (NSW)/Australia 100 AUD 100.0 • Voith Mont Montagens e Serviços Ltda., Barueri (SP)/Brazil 536 BRL 100.0 Voith Fabrics do Brasil Representação Comercial Ltda., São Paulo (SP)/Brazil 128 390 BRL 100.0 • Voith Paper Máquinas e Equipamentos Ltda., São Paulo (SP)/Brazil 37 270 408 BRL 100.0 • 43800037 Voith Paper, Coquitlam (BC)/Canada 2 CAD 100.0 • Voith Canada Inc., Hamilton (ON)/Canada 14 775 275 CAD 100.0

• = consolidated *) the percentage indicates the head organization’s shareholdings Voith AG – Consolidated Financial Report 2005/2006 | The Voith Group and its Shareholdings 149

Name and registered office Capital Share held *) Significant affiliated companies in local currency %

• Voith Paper Canada Inc., Laval (QC) /Canada 100 CAD 100.0 • Voith Chile Ltda., Coronel - Chile/Chile 12 500 000 CLP 100.0 • Voith Paper Fabrics (China) Co., Ltd., Kunshan Jiangsu Province/China 15 000 000 USD 100.0 • Voith Paper Rolls (China) Co., Ltd., Kunshan Jiangsu Province/China 16 050 000 USD 100.0 • Voith Paper Technology (China) Co., Ltd., Liaoyang City/China 12 380 000 USD 100.0 • Voith Paper International Trading Co., Ltd., Shanghai/China 300 000 USD 100.0 • Pikoteknik Oy, Parhalahti/Finland 33 638 EUR 100.0 • Voith Paper Fabrics Oy, Vantaa/Finland 5 046 EUR 100.0 • Voith Paper Oy, Vantaa/Finland 8 409 EUR 100.0 • Voith Paper Fabrics SAS, Annonay Cedex/France 8 675 100 EUR 100.0 • Voith Paper SAS, Orsay/France 40 000 EUR 100.0 • Voith Paper Fabrics Blackburn Ltd., Blackburn (Lancashire)/Great Britain 19 400 000 GBP 100.0 • Voith Paper Fabrics Stubbins, Ltd., Bury (Lancashire)/Great Britain 160 000 GBP 100.0 • Voith Paper Ltd., Manchester/Great Britain 1 000 000 GBP 100.0 • Voith Paper Technology (India) Ltd., Calcutta/India 29 999 900 INR 50.0 • Porritts & Spencer (Asia) Ltd., Faridabad (Haryana)/India 43 925 590 INR 74.0 PT. Voith Paper, Jakarta/Indonesia 750 000 USD 100.0 • PT. Voith Paper Rolls Indonesia, Karawang - West Java/Indonesia 3 570 000 USD 76.0 • RIF ROLL COVER SRL, Basaldella (Udine)/Italy 102 960 EUR 51.0 • Voith Paper S.r.L., Schio (Vicenza)/Italy 258 000 EUR 100.0 Jagenberg Kabushiki Kaisha, Tokyo/Japan 50 000 000 JPY 100.0 • Voith IHI Paper Technology Co., Ltd., Tokyo/Japan 490 000 000 JPY 49.0 • Voith Paper Co., Ltd., Tokyo/Japan 103 730 000 JPY 100.0 • Voith Paper Fabrics Japan Co. Ltd., Tokyo/Japan 10 000 000 JPY 100.0 Voith Paper Automation Japan Ltd., Yokohama/Japan 40 000 000 JPY 100.0 Voith Paper Fabrics Asia Pacific Sdn. Bhd., Ipoh/Malaysia 200 MYR 100.0 • Voith Paper Fabrics Ipoh Sdn. Bhd., Ipoh, Perak Darul Ridzuan/Malaysia 56 000 000 MYR 100.0 • Voith Paper Fabrics B.V., Haaksbergen/The Netherlands 113 445 EUR 100.0 • Voith Paper B.V., Vaassen/The Netherlands 18 151 EUR 100.0 • Voith Paper AS, Lier/Norway 4 401 000 NOK 100.0 • Voith Paper Fabrics AS, Tranby/Norway 100 000 NOK 100.0 • Voith Paper Fabrics GmbH, Frankenmarkt/Austria 374 265 EUR 99.8 • Voith Paper Rolls GmbH & Co. KG, Laakirchen-Oberweis/Austria 726 728 EUR 100.0 150 Voith AG – Consolidated Financial Report 2005/2006 | The Voith Group and its Shareholdings

Name and registered office Capital Share held *) Significant affiliated companies in local currency %

• Voith Dienstleistungs-GmbH, St. Pölten/Austria 35 000 EUR 100.0 • Voith Paper Automation GmbH & Co. KG, St. Pölten/Austria 1 000 000 EUR 100.0 • Voith Paper GmbH, St. Pölten/Austria 13 994 750 EUR 100.0 • Voith Paper Rolls GmbH & Co. KG, St. Pölten/Austria 5 000 000 EUR 100.0 • Voith Paper Rolls GmbH & Co. KG, Wimpassing/Austria 3 270 278 EUR 100.0 Voith Paper Technology Russia GmbH, St. Petersburg/ Russian Federation 10 000 RUR 100.0 • Voith Paper Fabrics Gusum AB, Gusum/Sweden 2 000 000 SEK 100.0 • Voith Paper Fabrics Högsjö AB, Högsjö/Sweden 28 589 000 SEK 100.0 • Voith Paper Rolls AB, Lessebo/Sweden 500 000 SEK 100.0 • Voith Paper AB, Spanga-Stockholm/Sweden 100 000 SEK 100.0 • Voith Paper Walztechnik AG, Zürich/Switzerland 150 000 CHF 100.0 • Voith Paper Fabrics, S.A., Guissona (Lérida)/Spain 1 202 024 EUR 100.0 • Voith Paper S.A., Ibarra, Guipuzcoa/Spain 1 887 715 EUR 100.0 • Voith Paper Fabrics Appleton, Inc., Appleton (WI)/USA 625 750 USD 100.0 • Voith Paper Inc., Appleton (WI)/USA 2 006 975 USD 100.0 • Voith Paper Automation Inc., Los Gatos (CA)/USA 6 000 000 USD 100.0 • Voith Paper Rolls Central Inc., Neenah (WI)/USA 100 000 USD 100.0 • Voith Paper Fabrics Shreveport, Inc., Shreveport (LA)/USA 26 050 348 USD 100.0 • Voith Paper Finishing Inc., Springfield (MA)/USA 7 120 626 USD 100.0 • Voith Paper Rolls West Inc., Springfield (OR)/USA 11 327 802 USD 100.0 • Syn Strand Inc., Summerville (SC)/USA 641 649 USD 100.0 • Voith Paper Fabrics Waycross, Inc., Waycross (GA)/USA 200 USD 100.0 • Voith Paper Rolls South Inc., West Monroe (LA)/USA 10 626 990 USD 100.0 • Voith Fabrics Wilson Limited Partnership, Wilson (NC)/USA 2 000 USD 100.0 • Voith Fabrics Wilson LLC, Wilson (NC)/USA 240 081 443 USD 100.0 • Voith Paper Fabrics US Sales Inc., Wilson (NC)/USA 300 USD 100.0 • Voith Paper Rolls Inc., Wilson (NC)/USA 2 857 891 USD 100.0

• = consolidated *) the percentage indicates the head organization’s shareholdings Voith AG – Consolidated Financial Report 2005/2006 | The Voith Group and its Shareholdings 151

Name and registered office Capital Share held *) Significant affiliated companies in local currency %

• Voith Turbo GmbH & Co. KG, Heidenheim 25 600 000 EUR 100.0

• Voith Turbo Lokomotivtechnik GmbH & Co. KG, Heidenheim 2 500 000 EUR 100.0 • Voith Turbo Marine GmbH & Co. KG, Heidenheim 2 582 050 EUR 100.0 ACIDA GmbH, Herzogenrath 200 000 EUR 69.9 • Voith Turbo H+L Hydraulic GmbH & Co. KG, Rutesheim 6 000 000 EUR 100.0 • Voith Turbo Scharfenberg GmbH & Co. KG, Salzgitter 5 113 000 EUR 100.0 • Voith Turbo Pty. Ltd., Wetherill Park (NSW)/Australia 650 000 AUD 100.0 • Voith Turbo Scharfenberg Pty. Ltd., Wetherill Park (NSW)/Australia 400 000 AUD 100.0 • Voith Turbo S.A./N.V., Brüssel/Belgium 300 000 EUR 100.0 • Voith Turbo Ltda., São Paulo (SP)/Brazil 4 670 734 BRL 100.0 H + L Equipamentos Hydraulicos Ltda., Sorocaba (SP)/Brazil 133 429 BRL 100.0 • Voith Turbo Inc., Concord (ON)/Canada 1 021 CAD 100.0 Voith Turbo S. A., Santiago de Chile/Chile 38 250 000 CLP 100.0 • Voith Turbo Limited, Hong Kong/China 650 000 HKD 100.0 • Voith Turbo Power Transmission (Shanghai) Company Ltd., Shanghai/China 6 916 000 RMB 100.0 • Voith Turbo A/S, Gadstrup/Denmark 700 000 DKK 100.0 Voith Turbo Hochelastische Kupplungen GmbH & Co. KG, Essen 1 000 EUR 100.0 • Voith Turbo Aufladungssysteme GmbH & Co. KG, Gommern 500 000 EUR 60.0 • Voith Turbo SAS, Noisy-le-Grand Cedex/France 2 072 000 EUR 100.0 • Voith Turbo Limited, Croydon (Surrey)/Great Britain 5 000 000 GBP 100.0 H + L Hydraulic Ltd., Croydon (Surrey)/Great Britain 260 000 GBP 100.0 • Voith Turbo Private Limited, Hyderabad (A.P.)/India 70 000 000 INR 100.0 Voith Turbo Rail Private Limited, Hyderabad (A.P.)/India 4 999 800 INR 100.0 Voith Turbo Iran Co., Ltd., Teheran/Iran 760 000 000 IRR 98.8 • Voith Turbo s.r.l., Reggio Emilia/Italy 1 200 000 EUR 100.0 • Voith Turbo Co., Ltd., Kawasaki-shi, Kanagawa/Japan 38 000 000 JPY 100.0 Voith Turbo d.o.o., Zagreb/Croatia 20 000 HRD 60.0 Voith Turbo Sdn. Bhd., Kuala Lumpur/Malaysia 1 000 000 MYR 100.0 Voith Turbo S.A., Casablanca/Marocco 4 000 000 MAD 100.0 Voith Turbo S.A. de C.V., Mexico (D.F.)/Mexico 2 474 095 MXP 100.0 • Voith Turbo B.V., Twello/The Netherlands 18 000 EUR 100.0 Voith Turbo Drive Systems B.V., Twello/The Netherlands 1 500 000 EUR 100.0 • Voith Turbo GmbH & Co. KG, St. Pölten/Austria 3 633 642 EUR 100.0 152 Voith AG – Consolidated Financial Report 2005/2006 | The Voith Group and its Shareholdings

Name and registered office Capital Share held *) Significant affiliated companies in local currency %

• Voith Turbo Ges.m.b.H., Wien/Austria 40 000 EUR 100.0 • Voith Turbo Sp. z o.o., Wola Krzysztoporska/Poland 250 000 PLN 100.0 Voith Turbo S.R.L., Bukarest/Romania 183 250 RON 100.0 • Voith KMPO Getriebe GmbH, Kasan/Russian Federation 14 400 000 RUR 58.0 • Voith Turbo Safeset AB, Hudiksvall/Sweden 2 000 000 SEK 100.0 • Voith Turbo AB, Spanga-Stockholm/Sweden 3 475 000 SEK 100.0 H + L Holding AG, Baar/Switzerland 200 000 CHF 100.0 BW Hydraulik AG, NeuheimSwitzerland 100 000 CHF 50.0 Hartmann + Lämmle AG, Neuheim/Switzerland 250 000 CHF 97.6 Voith Turbo d.o.o., Belgrad/Serbia 151 015 YUD 50.0 • Voith Turbo Pte. Ltd., Singapore/Singapore 507 330 SGD 100.0 • Voith Turbo S.A., Coslada Madrid/Spain 1 500 000 EUR 100.0 • Voith Turbo (Pty.) Ltd., Witfield (Boksburg)/South Africa 127 572 ZAR 100.0 • Voith Turbo Co., Ltd., Seodaemun-Gu (Seoul)/South Korea 337 500 000 KRW 80.0 • Voith Turbo Limited, Kaohsiung/Taiwan 5 500 000 TWD 100.0 Voith Turbo s.r.o., Brno/Chech Republic 1 000 000 CZK 100.0 Voith Turbo Ukraine TOW, Kiew/Ukraine 50 000 EUR 100.0 • Voith Turbo Kft., Biatorbágy/Hungary 285 250 000 HUF 100.0 • Voith Turbo, Inc., York (PA)/USA 2 150 000 USD 100.0 • Voith Turbo Ltd., Limassol/Cyprus 16 617 EUR 100.0

• Voith Siemens Hydro Power Generation GmbH & Co. KG, Heidenheim 23 519 500 EUR 65.0

• VHG Auslandsbeteiligungen GmbH, Heidenheim 25 565 EUR 100.0 • Voith Siemens Hydro Kraftwerkstechnik GmbH & Co. KG, Heidenheim 15 441 100 EUR 100.0 • VS Auslandsbeteiligungen GmbH, Heidenheim 26 000 EUR 100.0 • Voith Siemens Hydro Power Generation Services Ltda., São Paulo (SP)/Brazil 20 000 BRL 100.0 • Voith Siemens Hydro Power Generation Ltda., São Paulo (SP)/Brazil 42 962 560 BRL 100.0 • Voith Siemens Hydro Power Generation Services Inc., Mississauga (ON)/Canada 1 000 CAD 100.0 • Voith Siemens Hydro Power Generation Inc., Montréal (QC)/Canada 1 CAD 100.0 • Voith Siemens Hydro Power Generation Shanghai, Ltd., Shanghai/China 34 666 667 USD 75.0 • Voith Siemens Hydro Power Generation SA, Belfort/France 527 854 EUR 100.0

• = consolidated *) the percentage indicates the head organization’s shareholdings Voith AG – Consolidated Financial Report 2005/2006 | The Voith Group and its Shareholdings 153

Name and registered office Capital Share held *) Significant affiliated companies in local currency %

Wavegen a trademark of Applied Research & Technology Ltd., Inverness/Great Britain 1 349 496 GBP 100.0 • Voith Siemens Hydro Pvt. Ltd., New Delhi/India 19 999 000 INR 100.0 • Voith Siemens Hydro Power Generation S.p.A., Cinisello Balsamo (MI)/Italy 120 000 EUR 100.0 • Voith Fuji Hydro K. K., Kawasaki-shi/Japan 200 000 000 JPY 50.0 • Voith Siemens Hydro Power Generation A/S, Oslo/Norway 3 000 000 NOK 100.0 • Sarpsborg Energi Service AS, Sarpsborg/Norway 530 000 NOK 51.0 • Voith Siemens Hydro Power Generation GmbH & Co. KG, St. Pölten/Austria 3 633 642 EUR 100.0 VG Power AB, Västeras/Sweden 1 200 000 SEK 51.0 • Voith Siemens Hydro Power Generation S.L., Ibarra (Guipúzcoa)/Spain 345 575 EUR 100.0 Voith Siemens Hydro Power Generation s.r.o., Pilsen/Czech Republic 200 000 CZK 100.0 Synergics Energy Development, Inc., Annapolis (MD)/USA 1 689 790 USD 97.5 • Weld Mart, Inc., Chattanooga (TN)/USA 1 USD 100.0 Hydro Resource Solutions, LLC, Norris (TN)/USA 249 707 USD 50.1 • Voith Siemens Hydro Power Generation, Inc., York (PA)/USA 43 344 100 USD 100.0

• Voith Industrial Services Holding GmbH, Heidenheim 500 000 EUR 100.0

• Voith Industrial Services Paper GmbH & Co. KG, Heidenheim 25 000 EUR 100.0 • Voith Industrial Services Wind GmbH, Stuttgart 25 000 EUR 100.0 • DIW Instandhaltung GmbH & Co. KG, Heidenheim 41 312 EUR 100.0 • Voith Serviços Industriais do Brasil Ltda., São Paulo (SP)/Brazil 724 652 BRL 100.0 • Premier Manufacturing Support Services of Canada Ltd., Windsor (ON)/Canada 100 CAD 100.0 • Premier Manufacturing Support Services (UK) Ltd., Warwick/Great Britain 50 000 GBP 100.0 • Premier Manufacturing Support Services Poland Sp. z. o.o., Gliwice/Poland 500 000 PLN 100.0 • Premier Manufacturing Support Services Unipessoal Lda., Villa Franca de Xira/Portugal 5 000 EUR 100.0 • Premier Manufacturing Support Services AB, Trollhättan/Sweden 100 000 SEK 100.0 • Premier Manufacturing Support Services Spain S.L., San Sebastian/Spain 3 006 EUR 100.0 • Premier Manufacturing Support Services Inc., Cincinnati (OH)/USA 10 USD 100.0 154 Voith AG – Consolidated Financial Report 2005/2006 | The Voith Group and its Shareholdings

Name and registered office Capital Share held *) Significant affiliated companies in local currency %

• DIW Deutsche Industriewartung AG, Stuttgart 20 500 000 EUR 54.8

• ditis Systeme GmbH & Co. KG, Heidenheim 400 000 EUR 100.0 • Voith Dienstleistungen GmbH, Heidenheim 1 000 000 EUR 100.0 • Hörmann Industrietechnik GmbH, Kirchseeon 5 912 500 EUR 51.0 • Voith Industrial Services Engineering GmbH, Ludwigshafen 200 000 EUR 100.0 • Voith Industrial Services Industriefertigung GmbH, Radebeul 25 000 EUR 100.0 • Voith Industrial Services Indumont GmbH & Co. KG, Stuttgart 3 542 369 EUR 100.0 • DIW Instandhaltung GmbH & Co. KG, Stuttgart 15 525 000 EUR 100.0 • Voith Industrial Services Mechanical Engineering GmbH & Co. KG, Stuttgart 657 631 EUR 100.0 • Voith Industrial Services Energy GmbH & Co. KG, Stuttgart 25 000 EUR 100.0 • DIW Service GmbH, Ulm 50 000 EUR 100.0 • Profluid GmbH, Ulm 25 000 EUR 100.0 • Premier Brazil Servicos de Supporte para Industrias Ltda., São Paulo/Brazil 436 865 BRL 100.0 • Premier Automobile Manufacturing Support Services Co. (Shanghai) Ltd., Shanghai/China 200 000 USD 100.0 • Premier Automobile Manufacturing Support Services Co. (Shenyang) Ltd., Shenyang/China 100 000 USD 100.0 • Hörmann Engineering GmbH, Chemnitz 950 000 EUR 51.0 • Premier Manufacturing Support Services de Mexico S. de R.L. de C.V., Saltillo/Mexico 3 000 MXP 100.0 • Hörmann Industrietechnik Steyr GmbH, Steyr/Austria 35 000 EUR 51.0 • DIW Instandhaltung GmbH, Wien/Austria 1 500 000 EUR 100.0 • Hörmann Serwis Polska Sp. z. o.o., Poznan/Poland 200 000 PLN 51.0 • DIW Service s.r.o, Bratislava/Slovakia 2 000 000 SKK 100.0 • DIW Service d.o.o., Maribor/Slovakia 30 000 000 SIT 100.0 • DIW Service s.r.o, Prague/Czech Repubic 2 000 000 CZK 100.0 • Hörmann Györ Kft, Györ/Hungary 9 220 000 HUF 50.0 • DIW Service Kft., Veszprém/Hungary 20 000 000 HUF 100.0

• = consolidated *) the percentage indicates the head organization’s shareholdings **) the percentage indicates the Group’s shareholding Voith AG – Consolidated Financial Report 2005/2006 | The Voith Group and its Shareholdings 155

Name and registered office Capital Share held* *) Significant investments in local currency %

IHKW Industrieheizkraftwerk Heidenheim GmbH, Heidenheim 25 565 EUR 25.2 Meri Entsorgungstechnik für die Papierindustrie GmbH, Ravensburg 51 129 EUR 50.0 GAW Pildner-Steinburg GmbH Nfg & Co. KG, Graz/Austria 799 401 EUR 20.0 LZH Logistic Zollservice Heidenheim GmbH, Heidenheim 51 000 EUR 25.1 Micromat Spannhydraulik GmbH, Rutesheim 154 000 EUR 50.0 Nippon Retarder System Co., Ltd., Osaka/Japan 50 000 000 JPY 50.0 Technical Services Paper GmbH, Ettringen 30 000 EUR 30.0 156

Voith Trade Fairs 2007

Voith Paper Voith Turbo Transport 2007 Oslo/Norway Tissue World Pump User Symp. 2007-05-10 – 2007-05-13 Montréal/Canada Houston (TX)/USA 2007-03-26 – 2007-03-29 2007-03-05 – 2007-03-08 Korea Railways Fair Busan/South Korea PulPaper HRSG Users Group 2007-05-16 – 2007-05-19 Helsinki/Finland Kansas City (MO)/USA 2007-06-05 – 2007-06-07 2007-03-26 – 2007-03-28 UITP Helsinki/Finland Zellcheming Transport 2007 2007-05-21 – 2007-05-24 Wiesbaden/Germany Herning/Denmark 2007-06-26 – 2007-06-28 2007-03-28 – 2007-03-31 Longwall USA 2007 Pittsburgh (PA)/USA PTS Symposium Rail Solutions 2007-06-05 – 2007-06-07 Baden-Baden/Germany Taipeh/Taiwan 2007-09-18 – 2007-09-21 April 2007 Nor-Shipping Oslo/Norway China Paper MedMar South Port Said 2007-06-12 – 2007-06-15 Peking/China Port Said/Egypt 2007-09-18 – 2007-09-20 2007-04-17 – 2007-04-19 METEC 07 Dusseldorf/Germany MIAC Solutrans 2007-06-12 – 2007-06-16 Carrara/Italy Lyon/France 2007-10-10 – 2007-10-12 2007-04-17 – 2007-04-21 Blechexpo/Schweißtec Stuttgart/Germany ABTCP Commercial Vehicles 2007-06-13 – 2007-06-16 São Paulo/Brazil Peking/China 2007-10-15 – 2007-10-18 2007-04-18 – 2007-04-20 Exponor Antofagasta/Chile Paperex Bauma 2007-06-18 – 2007-06-22 New Delhi /India Munich/Germany 2007-12-07 – 2007-12-10 2007-04-23 – 2007-04-29 Modern Railways Peking/China AISTech 2007 June 2007 Indianapolis (IN)/USA 2007-05-07 – 2007-05-10 Trade Fairs 157

Naval Shore Busworld Voith Siemens Hydro Power Rio de Janeiro/Brazil Kortrijk/Belgium Generation 2007-08-29 – 2007-08-31 2007-10-19 – 2007-10-24 Waterpower XV Extemin RAI Amsterdam Chattanooga (TN)/USA Arequipa/Peru Amsterdam/The Netherlands 2007-07-23 – 2007-07-26 2007-09-10 – 2007-09-14 2007-10-25 – 2007-11-03 Hydro 2007 Int. Mining, Power Ind. ExpoRail Granada/Spain Kattowitz/Poland Moscow/Russia 2007-10-15 – 2007-10-17 2007-09-11 – 2007-09-14 2007-10-31 – 2007-11-02

Bluefield Coal Show Europort Martime Bluefield (WV)/USA Rotterdam/The Netherlands 2007-09-12 – 2007-09-14 2007-11-06 – 2007-11-10

EMO AgriTechnica Hanover/Germany Hanover/Germany 2007-09-17 – 2007-09-22 2007-11-11 – 2007-11-17

HusumWind Railtec Husum/Germany Dortmund/Germany 2007-09-18 – 2007-09-22 2007-11-12 – 2007-11-14

Int. Engineering Exh. Marintec China Brünn/Czech Republic Shanghai/China September 2007 2007-11-27 – 2007-11-30

Foire d Álgier AusRail Plus Algier/Algeria Sydney/Australia September 2007 2007-12-04 – 2007-12-06

TRACO 07 Int. WorkBoat Show Danzig/Poland New Orleans (LA)/USA 2007-10-10 – 2007-10-12 December 2007 158

Your Contact with Voith

Holding Company Voith Paper Voith Siemens Hydro Phone: +49 7321 37-0 Phone: +49 7321 37-7254 Power Generation Fax: +49 7321 37-70 00 Fax: +49 7321 37-7941 Phone: +49 7321 37-6848 E-mail: [email protected] E-mail: [email protected] Fax: +49 7321 37-7828 E-mail: [email protected] Public Relations Voith Turbo Phone: +49 7321 37-2219 Phone: +49 7321 37-2832 Voith Industrial Services Fax: +49 7321 37-7107 Fax: +49 7321 37-7110 Phone: +49 711 7841-170 E-mail: [email protected] E-mail: [email protected] Fax: +49 711 7841-179 E-mail: [email protected] Investor Relations Phone: +49 7321 37-2332 Fax: +49 7321 37-7010 E-mail: [email protected] Contact | Imprint 159

Imprint

Published by Editor Lithography Voith AG Markus Woehl Eder GmbH-Medien Management, P.O. Box 2000 Voith AG, Ostfildern/Germany 89510 Heidenheim/Germany Corporate Communications, Phone: +49 7321 37-0 Heidenheim/Germany Prepress Fax: +49 7321 37-7000 infowerk ag, Internet: www.voith.com Design Nuremberg/Germany E-mail: [email protected] Henriette M. Albert Roland Kaiser Print Voith AG, Wahl-Druck GmbH, Corporate Communications, Aalen/Germany Heidenheim/Germany

Photography Andreas Hackl, Munich/Germany Rüdiger Nehmzow, Dusseldorf/ Germany Susanne Wegner, Stuttgart/Germany Wesser & Bogenschütz, Heidenheim/ Germany 160

The paper on which this annual report is printed was produced on a Voith paper machine. The people shown in this report are Voith employees. The annual report is also available in German. Printed in Germany © Voith AG/2007-03 05