BAUER Aktiengesellschaft Annual Report 2006 at a Glance: the Group 2003 – 2006 in EUR Million

BAUER Aktiengesellschaft Annual Report 2006 At a Glance: The Group 2003 – 2006 in EUR million

IFRS 2003 2004 2005 2006

Total Group revenues 634.0 664.0 824.3 979.9 of which: Construction, Germany 266.4 250.9 223.2 234.2 International 173.0 186.8 290.7 328.4 Equipment 194.6 226.3 310.4 417.3

Consolidated revenues * 615.9 640.2 770.0 914.2 Sales revenues * 576.5 602.4 717.5 835.4 Orders in hand as per February of following year 288.6 311.7 386.8 429.8 as per December of current year 269.7 281.3 346.1 422.4

Employees (on average over the year) 4,629 4,810 5,155 5,541 of which: Germany 2,594 2,659 2,663 2,741 International 2,035 2,151 2,492 2,800

Capital investment in property, plant and equipment 48.4 33.0 51.1 61.1

Net assets 485.2 495.5 568.8 643.7

Fixed assets 172.6 169.8 184.3 205.7 of which: Property, plant and equipment and Intangible assets 168.8 165.9 179.9 196.2 Financial assets 3.8 3.9 4.5 9.5

Shareholders' equity 122.3 128.4 148.5 222.6 Subscribed capital 63.0 63.0 63.0 73.0

Equity ratio in % 25.2 25.9 26.1 34.6

Profit 13.8 8.7 19.5 35.2 Earnings per share ** 0.90 0.55 1.32 2.17 Dividend payment (2006 proposal) 1.48 1.85 2.46 8.57 Dividend per share in EUR 0.60 0.75 1.00 0.50

Return on equity after tax in % 11.3 6.8 13.1 15.8 EBIT 34.9 31.6 47.5 73.0 EBIT / consolidated revenues in % * 5.7 4.9 6.2 8.0 EBITDA 76.9 74.8 94.8 123.2 EBITDA / consolidated revenues in % * 12.5 11.7 12.3 13.5

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

* Previous year figures have been adjusted; see Notes item (5) ** Following share split; see Notes item (13) BAUER Aktiengesellschaft 2006 Annual Report

3 Management Board of the Company

4 Foreword

8 Milestones in the Company's History

10 The World is our Market

12 2006 Group Management Report of BAUER Aktiengesellschaft

38 Specialist Foundation Engineering, Germany

40 Specialist Foundation Engineering, International

42 Specialist Construction

44 Equipment

48 The BAUER Share

50 Corporate Governance Report

55 Report by the Supervisory Board

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

63 Consolidated Financial Statements of BAUER Aktiengesellschaft in accordance with IFRS

112 Imprint Péribonka dam project in Canada Management Board of the Company

Management Board Dipl.-Ing. Heinz Kaltenecker, Dipl.-Ing. (FH) Mark Schenk, Prof. Dipl.-Kfm. Thomas Bauer, Prof. Dipl.-Kfm. Thomas Bauer, Chairman Dipl.-Betriebswirt (FH) Hartmut Functions: Subsidiaries Beutler Supervisory Board, BAUER Spezialtiefbau GmbH, Schrobenhausen, Chairman 1 Supervisory Board, BAUER Maschinen GmbH, Schrobenhausen, Chairman 1 Supervisory Board, SCHACHTBAU NORDHAUSEN GmbH, Nordhausen, Chairman 1 Supervisory Board, Sozialkassen der Bauwirtschaft, Wiesbaden (construction industry ancillary benefits and holiday benefits fund) 2 Supervisory Board, Mannheimer Holding AG, Mannheim 2

Dipl.-Betriebswirt (FH) Hartmut Beutler Functions: Finance, Legal Affairs, Facility Management

Dipl.-Ing. Heinz Kaltenecker Functions: Subsidiaries Supervisory Board, BAUER Maschinen GmbH, Schrobenhausen 1 Supervisory Board, SCHACHTBAU NORDHAUSEN GmbH, Nordhausen 1

Dipl.-Ing. (FH) Mark Schenk Functions: Human Resources, IT, Accounting, Controlling

1 Internal Supervisory Board membership 2 Memberships of Supervisory Boards or comparable supervisory bodies in Germany and abroad, in accordance with section 285 No. 10 of the German Commercial Code (HGB)

3 Foreword

Dear Shareholders and Friends, Ladies and Gentlemen,

The companies of the BAUER Group have once again made excellent progress in 2006. The outstanding event in the past financial year was the company's listing on the Frankfurt Stock Exchange on July 4, 2006 – a major milestone in the history of Bauer. For decades now, our strategic goal has been to develop the business in order to establish a leading international position with our specialist foundation engineering services and related equipment sales so that a stock market listing would be possible, thereby ultimately safeguarding the long-term independence of the Group. Last year's listing represented the attainment of that goal. In the early months of the year we focused closely on preparations for the upcoming listing. In addition to drawing up the annual financial statements, we had to write a prospectus with the assistance of our legal advisers and bankers, and also compiled documentation for our presentations to potential investors and the public. As the markets were extremely healthy during those months, we had few concerns about the final step – the actual public offering of shares. However, two months prior to the scheduled listing date the climate turned distinctly icy. Markets went into free fall, and within just a few days potential investors had stopped buying and started looking to sell. The last weeks before the initial price was set on the Frankfurt trading floor posed a challenge to the nerves of all involved – our management team as well as our bankers. When the day came, the listing succeeded in hitting its mark, though it was tight: the issue price of EUR 16.75 was just above the lower end of the price span. Since then our share price has risen steadily. At the year-end it stood at EUR 32.30, around 93 percent up on the issue price. We are extremely pleased with its performance. This stock market listing has very significant advantages for our business. For the first time, we had the opportunity – indeed were obliged – to present our strategy in detail to an array of highly critical and influential international market analysts. It was extremely pleasing to us that virtually all potential investors understood and appreciated our Group's positioning as an international construction engineering and equipment manufacturing business within a clearly defined market. In recent years the relative scale of the various divisions within the Group has shifted significantly. Whereas in the early 1980s, domestic specialist foundation engineering operations still accounted for 80 percent of total sales, they now make up just 10 percent. In the same period, the international specialist foundation engineering business has increased to over 30 percent of total sales, and sale of construction equipment to over 40 percent. This trend has also radically altered the Group's market positioning. Bauer is no longer a German company in the way the general public perceives it. Today Bauer is an international concern managed from a German base. Around three quarters of total Group revenues are generated outside of Germany.

4 Investors also appreciated the sound market prospects of our new products arising from our specialist foundation engineering know-how, such as geothermal applications, offshore drilling methods and exploration mining all over the world. The equipment and services developed for those operations are delivering substantial growth. Another key reason for the very healthy trend in our share price since listing has of course also been the excellent progress made by our company in the past year. Total Group revenues increased by just under 19 percent; sales of Bauer Maschinen increased by 38 percent. Consolidated profit after tax increased by more than 80 percent, to EUR 35.2 million.

Geographical breakdown of total Group revenues Breakdown of total Group revenues in EUR million in the Equipment segment in EUR million Germany 282 Other 54 29 % Germany 54 EU excl. Germany 104 6 % Other 21 5 % 13 % 25 %

America 156 16 % 18 % EU excl. 21 % 12 % 11 % 13 % Germany America Europe 181 89 10 % 7 % other 50 14 % Far East 45 Middle East 54

Far East 102 Europe other 70 Middle East 135 Breakdown of total Group revenues in the Construction segment in EUR million This success is founded on the following key factors: the specialist foundation engineering market Germany 228 has been growing strongly for a number of years. Forecast growth in the global economy is cur- Other 33 rently around 4 percent per year. This growth does, however, require adequate investment in con- 6 % 40 % struction projects in order to develop the public and private sector infrastructure. For this reason, America 12 % 67 10 % 13 % construction volumes are growing much faster than the global economy. The construction projects 14 % 4 % demand substantial additional equipment capacities. The global construction equipment industry Far East 57 EU excl. Middle East 81 Europe Germany is profiting from that trend, with current annual growth rates of well over 10 percent. other 20 77 In this phase, the specialist foundation engineering business is growing even more strongly than the construction business, as the ever tighter spaces in our major cities mean expensive construction land has to be utilized much more intensively than in the past. This entails additional demand for specialist services and equipment. Bauer's ability to outperform the market trend is primarily due to our success, in recent years, in building strong international networks encompassing branch offices and subsidiaries, providing a

5 Foreword

Development of total Group revenues by strategic business sector in EUR million Total: 980 1000

900

800 417 700

600

500 133 Equipment 400 Specialist construction 300 Specialist foundation 328 200 engineering, international

100 Specialist foundation 102 engineering, Germany 0 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 range of construction engineering services and equipment. This organization is now demonstrating its effectiveness at precisely the right time. The success was also built on an expansion of equipment manufacturing capacities, both in Germany and abroad. Pleasure in what we have achieved in the past is a powerful motivator. But we have to remain constantly focussed on the demands of the future. Looking ahead to 2007, we see that our orders in hand provide us with an excellent basis to achieve a healthy increase in total Group revenues once again this year. In our international construction operations and in equipment sales, opportunities are again very strong. We are pleased to see that, after a decade of recession in Germany's construction industry, in our home market, is at last performing much more healthily again. Although prices are still not at the levels we might wish, we do expect to see a recovery soon. A major challenge is posed by ensuring adequate capacities are created for our equipment manufacturing operations. The recent enormous growth in this sector has taken our production facilities to the limits of their capacities. As we forecast further growth to come, we need to expand those capacities substantially. Consequently, for the next two years we have launched what will be the biggest investment programme in the company's history. By mid-2007 we will make a decision on the location of an additional production facility outside of Germany.

6 Foreword

The future will bring further challenges. It is our aim to continue expanding the company both nation- ally and internationally, and to enter into new areas of operation within our core competence fields. We see good opportunities for new products and markets. This past year we have taken a major step in the history of our company. Overall, we had an exciting and very satisfactory year. We would like to take this opportunity to thank all our employees in Germany and abroad for the effort and commitment they have brought to bear in contributing decisively to the success of the company in the past year. We would also like to thank the employee representation bodies for their constructive cooperation in the course of the reporting period. We are optimistic with regard to the future of our Group too. Based on the outstanding efforts of our employees, we will succeed in further strengthening our leading position on the market. Consequently, we will once again increase our revenue and our profit in 2007. Many opportunities and challenges lie ahead of us. We all take great pleasure in advancing the BAUER Group, and we will remain committed to that task.

Best regards,

Prof. Thomas Bauer

7 Milestones in the Company's History

1790 1959 Sebastian Bauer from Deggendorf acquires a First construction site outside Germany, in coppersmith's shop in Schrobenhausen. For Switzerland – the anchor begins its success over a century, the coppersmiths work on con- story. In the 1960s the anchor is deployed in structing breweries, installing copper roofing the construction of underground railway sys- and manufacturing household items. tems for many of Germany's cities. 1969 Design and manufacture of the first anchor drilling rig UBW 01 – the first step into the equipment business. 1975 First contracts in Libya, Saudi Arabia and the United Arab Emirates. In the period that follows, Bauer Spezialtiefbau expands its construction engineering and equipment sales operations to 1902 more and more countries. From the mid-1980s, Andreas Bauer sinks an artesian well for the new new areas of focus are centred in the Far East. waterhouse of the Augsburg-Ingolstadt rail line. 1976 Well-drilling becomes a new line of the business. First BG 7 large-diameter rotary drilling rig. Over 1928 the following decades the BG series becomes For Dipl.-Ing. Karl Bauer, a key project is the the core of Bauer's equipment business. construction of the central water supply system for Schrobenhausen. With this reference project under his belt, he turns the company into a well-drilling specialist, and is soon sinking wells and constructing water supply systems for towns and industrial facilities all over Bavaria. 1956 Dr.-Ing. Karlheinz Bauer, born in 1928 and a shareholder in the company since 1952, becomes sole managing director and focuses the Bauer anchoring for Munich's Olympic Stadium roof company's operations on specialist foundation engineering. 1984 1958 Two major projects – in Jeddah and involving the Invention of the injection anchor on the con- sealing of the Brombachsee lake in the central struction site of the Bayerischer Rundfunk build- Franconia region of Germany – demand the de- ing in Munich; registration of patent and inter- sign and construction of a dedicated trench cut- national marketing. ter. First construction contracts in the Far East.

8 1984 Construction of the new works complex West in Schrobenhausen, marking the start of aggres- sive marketing of equipment. 1986 Professor Thomas Bauer, second managing director since 1984, becomes sole managing Dipl.-Ing. Karl Bauer (left) turned the company into an industrial well-builder director. Under his leadership, the BAUER known throughout Bavaria. Dr.-Ing. Karlheinz Bauer led the company onto the Group's operations in the construction and international stage, taking it into the field of specialist foundation engineering and launching equipment manufacturing operations. Prof. Dipl.-Kfm. Thomas Bauer equipment sectors are internationalized. shaped the current global Group, with a network of operations on every continent. 1990 Founding of BAUER und MOURIK Umwelttechnik 1994 GmbH & Co (BMU). Following the acquisition of Founding of BAUER Aktiengesellschaft as the FWS Filter- und Wassertechnik GmbH in 2002, Group's holding company. the two companies form the new BAUER 2001 Environment Group. Restructuring of BAUER AG. BAUER Maschinen 1992 GmbH launches independent market operations, Following German reunification, acquisition of also controlling other companies including Klemm SCHACHTBAU NORDHAUSEN GmbH. Two years Bohrtechnik, Eurodrill, MAT Mischanlagentechnik, previously, together with Schachtbau Nordhau- RTG Rammtechnik, Prakla and Pileco. sen, the joint-venture subsidiary SPESA Spezial- bau und Sanierung GmbH had been established.

BAUER Maschinen in-house exhibition 2005 Following on from its sites in China and Italy, BAUER Maschinen GmbH opens a new production facility in Kurgan, Siberia. BAUER Spezialtiefbau GmbH estab- lishes further international subsidiaries. 2006 BAUER AG is listed on the stock market, its shares quoted for the first time on the Frankfurt Stock Exchange on July 4. From September 18, 2006 The Mall of the Emirates in Dubai BAUER AG is listed in the SDAX.

9 The World is our Market – in the construction sector ...

10 ... and in the equipment sector

Internationalization is the basis of the BAUER Group strategy. The individual companies in the Group view the world as their market. Whether in the equipment, construction or environmental technology field – in acquiring attractive new contracts and winning new customers, the highly experienced management team looks at all countries in the world. Collaboration with partners in all countries is growing ever closer. Nowadays, senior managers at our numerous subsidiaries all over the world are, for the most part, natives of the countries concerned and have their homes there. In the equipment sector, it has in recent years become increasingly necessary to serve the various markets with regionally distributed production facilities. Equipment and components from Bauer Maschinen are today additionally manufactured in Italy, Sweden, the USA, Russia, Malaysia and China.

11 2006 Group Management Report

Course of Business and Background Conditions

General economic climate The highly positive global economic trend was sustained in 2006. The new market economies in China, Russia and India are particularly dynamic, showing growth rates of around 10 percent and promising sustained improvement well into the future. Those countries also have a major influence on the development of the global economy as a whole, with Russia in particular exerting an ever growing influence by virtue of its huge oil and gas reserves. In the Far East, major economic dynamism has returned following the crisis of 1998. Burgeoning exports are enabling the countries in the region and their industrial companies to again invest intensively in the future. Demand for construction services has developed positively as a result. The buying power of the countries in the Middle East has grown significantly owing to the substantial rises in oil and gas prices. This is providing the Gulf states, in particular, with the opportunity to build further on their ambitious goals of turning themselves into highly sophisticated centres of international business and leisure. The construction boom of recent years will be sustained. Whereas construction demand in recent years has been restricted mainly to the United Arab Emirates states, the trend is now also being seen in other countries in the region. Qatar, Saudi Arabia, Bahrain and Kuwait too are planning major construction projects. In the USA, there are signs of a decline in the real estate sector. Nevertheless, construction demand remains at a high level, as substantial investment is being made in infrastructure and energy supply. Healthy growth is being seen again in South America. By contrast, Africa continues to lack the same dynamism, though the trend there is positive. The construction market in Europe has picked up. Investment in infrastructure projects and commercial building in particular is showing strong growth. All major European construction companies report very healthy levels of orders in hand. Our home market, Germany, saw a highly positive upturn in 2006 following more than ten years of recession. Virtually all the indicators in the construction sector show an upward trend, both in the west and in the states in the former East Germany. Job cuts have been stopped, and from mid-2006 there was even a slight rise in employment levels in the sector. That trend will be sustained. The widespread view that the upward trend seen in 2006 was merely due to projects being brought forward because of the upcoming increase in sales tax (VAT) is not correct. The positive figures stem primarily from public sector and commercial building projects, which are not influenced – or influenced only to a limited extent – by sales tax (VAT) levels. We expect to see an ongoing positive trend in the German construction industry over the medium term. The reasons for that encouraging forecast lie in the backlogged need for building work in all areas of the construction sector. The positive trend in company profitability in Germany is enabling companies to invest more, and the much increased tax revenues mean the government, too, is able to fund the required public sector building projects. Construction companies in Germany, including ourselves, have not yet been able to profit from this positive situation. The recovery phase when emerging from a period of crisis such as we

12 have recently seen poses special demands on businesses. Orders have to be processed at the old price levels, while the cost of materials and subcontracting has already increased substantially. We expect that effect to change by mid-2007. Overall, trends on global construction markets are healthy. The specialist foundation engineering sector is outperforming even the general positive trend, and specialist foundation engineering projects are increasing as a percentage of overall construction demand. There are two reasons for this: in the tight confines of the world's major cities, it is now almost impossible to dig excavation pits and foundations without specialist foundation engineering services, and the size of structures being built is increasing too. Whereas bridges were previously built with two road lanes, for which a simple foundation was adequate, today's bridge projects call for multi-lane layouts often involving complex foundation engineering. The positive trend in the construction sector is having a particularly strong effect on our Group in terms of the equipment manufacturing business. As construction demand increases – and the demand for specialist foundation engineering services even more so – there is a disproportionately high demand for related equipment, as the construction companies first have to build up the additional capacities needed to carry out the increased number of projects. This is resulting in extraordinary growth rates in the construction equipment sector. Our strong presence on all world markets is enabling us to benefit greatly from that trend. The long-standing recession in Germany and our Group's strategy of globalization in recent years have resulted in a significant increase in the proportion of the BAUER Group's business generated on the international stage. In 2006 business from the home market in Germany accounted for only around 29 percent of total Group revenues (including non-consolidated subsidiaries and joint ventures). As we not only provide construction services in Germany, the Group's dependency on the domestic construction market has fallen, and now accounts for only around a fifth of total Group revenues. Although we are today no longer more dependent on the German construction market than any other, we are pleased to see our home market in a more healthy state, and that will deliver new growth impetus for our Group. The table below – relating to construction companies with more than 20 employees – illustrates the upturn following the end of the long crisis in Germany.

Change: 2006 against 2005

Germany overall West Germany East Germany

Sales 7.2 % 8.0 % 4.3 %

Hours worked 0.6 % 1.6 % -2.0 %

Employees -2.7 % -2.2 % -4.1 %

Orders received, in real terms 2.5 % 2.7 % 2.0 %

Source: Hauptverband der Deutschen Bauindustrie (German Construction Industry Federation)

13 2006 Group Management Report

Overall, the global economic trend and our healthy strategic position have had a very positive effect on our business. Global construction volumes, and especially demand for specialist foundation engineering, continues to grow, enabling us to forecast continued positive development of our construction operations and of our equipment selling business.

The Group BAUER Aktiengesellschaft is the holding company for a global group of companies operating in the specialist foundation engineering sector and related fields and in the manufacture and supply of equipment for specialist foundation engineering, together with related services. The holding company provides centralized administration and service functions for the member companies of the Group, specifically in the areas of human resources, accounting, finance, legal affairs and tax, safety and environmental management, information technology (IT) and facility management, enabling the companies themselves to focus on their core activities of developing, manufacturing and selling their specialist products.

BAUER Aktiengesellschaft is the holding company for the following major subsidiaries: • BAUER Spezialtiefbau GmbH (BST), the parent operating company of the Construction segment, which carries out specialist foundation engineering worldwide through its own network of branches and subsidiaries; • BAUER Maschinen GmbH (BMA), the parent operating company of the Equipment segment, which, directly and through subsidiaries, manufactures machinery, equipment and tools for the specialist foundation engineering sector and sells them in Germany and internationally; • SCHACHTBAU NORDHAUSEN GmbH (SBN), operating in the bridge building, sewage treatment plant construction and underground engineering fields, and also acting as a supplier to other Group machinery manufacturing companies based on its strong structural steel engineering business; and • SPESA Spezialbau und Sanierung GmbH, a provider of services in the construction segment specializing in remediation, restoration and reinforcing of concrete, masonry, plaster and natural stone structures.

In the 2006 financial year the BAUER Group further expanded its portfolio of business fields. Except for capital increases by BAUER Maschinen GmbH, from its own funds, from EUR 11.5 million to EUR 26.5 million, and by BAUER Spezialtiefbau GmbH, mainly from the funds of BAUER AG, from EUR 23.1 million to EUR 37.1 million, and minor company formations outside Germany aimed at underpinning and expanding our international operations, there were no other major statutory changes or capital measures by the subsidiary companies of BAUER AG to report.

14 2006 Group Management Report

Breakdown of total Group revenues 2006 by subsidiary (including intra-Group sales) - Intra-Group sales not deducted - in EUR million BMA 425

32 % BMA subsidiaries 183 13 %

BST sub- 19 % sidiaries, 9 % SBN incl. international 2 % subsidiaries 116 4 % 1 % 1 % 251 19 % SPESA 16

BAUER Mietsystem 19 BST subsidiaries, BAUER Aktiengesellschaft + Germany 60 BST 248 BAUER Dienste 25

Products and markets The BAUER Group is divided into three segments: Construction, Equipment and Other. The Construction segment carries out specialist foundation engineering work in Germany and abroad, including the production of complete excavation pits and foundations for major infrastructure engineering projects and buildings. It also operates in the specialist construction field, including environmental engineering and remediation projects. The German construction market saw an upturn in demand in 2006, after a long period of recession. Outside of Germany, the market positioning of BAUER companies was expanded and strengthened, in the environmental sector in particular. The specialist construction sector is served primarily by SPESA Spezialbau und Sanierung GmbH, SCHACHTBAU NORDHAUSEN GmbH and the BAUER Environment Group. The Equipment segment develops and produces construction machinery, equipment and tools for all areas of the specialist foundation engineering sector and markets them worldwide. Beyond the specialist foundation engineering field, machinery manufacturing operations have been expanded to equipment for mining, oil and geothermal exploration. Bauer operates a number of machinery manufacturing sites in Germany. Further manufacturing facilities are based in China, Malaysia and Italy. At three sites in Russia, machinery and drilling tools are manufactured for the Russian and Eastern European markets. In the USA, the Bauer subsidiary PILECO Inc., based in Houston, Texas, enjoys a very healthy market position with its low-frequency diesel-powered hammers.

15 2006 Group Management Report

The strength of the Group's worldwide equipment selling operations lies in its self-operated distribution network, comprising subsidiaries and local agents in many countries of the world. BAUER Maschinen GmbH is the world market leader in specialist foundation engineering equipment and machinery, with international sales accounting for just under 90 percent of the total. The Other segment comprises the central services, in particular accounting, human resources and IT, provided to the member companies of the Group primarily by BAUER Aktiengesellschaft.

Statutory conditions BAUER Aktiengesellschaft ("BAUER AG" for short) is a public limited company (stock corporation) with headquarters in Germany. The company is managed and represented in its dealings with third parties by the Management Board. In accordance with the law and the company's Articles of Association, the Management Board comprises at least two people, appointed by the Supervisory Board pursuant to section 84 of the German Corporation Act (Aktiengesetz) for a maximum term of office of five years. At present the Management Board comprises four members appointed by the Supervisory Board, and a Chairman of the Management Board has been designated. It is permissible to re-appoint or extend the appointment of a member of the Management Board for a further maximum term of office of five years. Any appointment or re-appointment requires a vote by the Supervisory Board, which may be taken no earlier than one year prior to the end of the relevant term of office. The Supervisory Board designates one of the members of the Management Board as Chairman. The Supervisory Board may rescind an appointment to the Management Board or an appointment as Chairman for good cause. The Presidial and Personnel Committee of the Supervisory Board prepares the Supervisory Board's decisions on the appointment and termination of appointment of Management Board members and concerns itself with the long-term planning of successor members for appointment to the Manage- ment Board. In accordance with section 179 of the German Corporation Act (Aktiengesetz), the Articles of Associ- ation of BAUER AG can only be amended by resolution of the Annual General Meeting of shareholders. The Annual General Meeting passes its resolutions by means of a simple majority of votes cast and – where a majority of the voting capital is required – by means of a simple majority of the voting share capital represented at the meeting during which the resolution is made, unless legal requirements or the Articles of Association stipulate differently. The German Corporation Act (Aktien- gesetz) stipulates that amendments to the Articles of Association require a majority of at least three quarters of the votes cast by the voting share capital represented at the meeting during which the resolution is made. In addition, authorization to amend and add to the Articles of Association in terms of its wording only is assigned to the Supervisory Board. A major statutory development resulted from the approval for shares in BAUER Aktiengesellschaft to be sold on the stock market, whereby on July 4, 2006 all 17,131,000 no-nominal-value shares, representing a pro rata amount of approximately EUR 4.26 per share of the total share capital of EUR 73,001,420.45, were listed for the first time in the Prime Standard of the Frankfurt Stock

16 2006 Group Management Report

Exchange. As part of the initial public offering (IPO), 2,347,000 of the total of 8,880,160 no-nominal- value bearer shares on offer originated from the EUR 10,001,420.45 capital increase from authorized capital as resolved by the Management Board with the consent of the Supervisory Board on June 13, 2006. From the originally established authorized capital of EUR 12,000,000, the Articles of Associ- ation of BAUER Aktiengesellschaft thus further authorize the Management Board, with the consent of the Supervisory Board, to increase the share capital once or more than once by December 31, 2008 by up to a total of EUR 1,998,579.55 by the issue of new no-nominal-value bearer shares against cash contributions, excluding the legal subscription rights of shareholders (authorized capital). By way of a market protection agreement as a precondition for the listing of BAUER Aktiengesellschaft, the company had undertaken not to announce or carry out any capital increase from authorized capital, not to propose any capital increase to its Annual General Meeting, and not to announce, carry out or propose any issue of financial instruments entailing rights of conversion or option rights to shares in the company or other commercially comparable transactions within six months of the settlement date without the prior written consent of the Sole Bookrunner Deutsche Bank. Prior to the listing, subsidiaries of BAUER Aktiengesellschaft held 449,160 shares of treasury stock in the parent company, which were sold as part of the IPO. In the course of the stock market listing in the 2006 financial year, the Deutsche Beteiligungs AG corporation, based in Frankfurt am Main, sold its substantive holding in BAUER Aktiengesellschaft, so that now, based on reciprocal offsetting arising from a shareholders' agreement, 48.16 percent of the voting shares are held by the Bauer family and 51.84 percent are in free float. As part of the listing process, the members of the Bauer family who are shareholders in the company have undertaken not to sell, distribute, transfer or dispose of in any other way, either indirectly or directly, shares or other securities in the company, and not to undertake any transactions commercially equivalent to a sale, within twelve months of the settlement date without the prior written consent of the Sole Bookrunner Deutsche Bank. No other direct or indirect holdings of BAUER Aktiengesellschaft share capital exceeding 10 percent of the voting rights are known to the company. In the course of the IPO and the associated stock market listing of shares in BAUER AG, up to 5 percent of the shares on offer were made available for preferential assignment within an employee share scheme to employees, senior management and members of the Management Board and the Super- visory Board of BAUER AG and its German subsidiaries whose contracts of employment are subject to German law. The shares assigned as part of an initial tranche were discounted on principle and embargoed until December 31, 2006, and consequently cannot be sold prior to that date. Any preferentially entitled person was able to acquire the shares issued in a second tranche. The shares in the second tranche were subject to a technical embargo until July 15, 2006.

17 2006 Group Management Report

Remuneration system for Management Board and Supervisory Board We have set out the principles underlying the remuneration system together with details of the amounts paid to individual members of the Supervisory Board in the 2006 financial year in the remuneration report forming part of our Corporate Governance Report, on pages 52 to 54 of the Annual Report. The remuneration report has to be seen as a component part of the management report.

Course of business The BAUER Group enjoyed a highly successful year in 2006. In terms of public awareness and for our shareholders, the successful stock market listing in July was doubtless the highlight of the year. However, the more important achievement was the extraordinarily successful overall performance of our business. In the Equipment segment, the most successful arm of our business during the year under review, Group revenues (including sales of non-consolidated subsidiaries and joint ventures) increased by 38.0 percent against the previous year to EUR 463.4 million. Segmental earnings before interest and taxes (EBIT) rose by a disproportionately high 96.5 percent from EUR 30.9 million to EUR 60.7 million. This very good result was to a large extent down to the fact that fixed costs increased much more slowly than sales. Our construction operations also enjoyed a highly positive improvement in performance. Group revenues (including non-consolidated subsidiaries and joint ventures) in this segment increased by 10.4 percent to EUR 575.5 million. Segmental earnings before interest and taxes (EBIT) totalled EUR 13.1 million, down EUR 4.0 million relative to the previous year's level. The downturn in earnings resulted half from the weakness of our domestic construction business and half from a charge taken based on a value adjustment in respect of risks arising from various court of mediation proceedings relating to international construction projects. In view of the still stagnant state of our home market in Germany, we are satisfied with the positive trend in sales of our construction business, which were generated almost entirely outside of Germany. The German construction business suffered from the fact that costs rise faster than revenues at the start of a recovery. This situation will change in 2007. Overall, Group revenues (including non-consolidated subsidiaries and joint ventures) increased by 18.9 percent to EUR 980 million. Profit after tax (including non-consolidated subsidiaries and joint ventures) improved by 80.5 percent to EUR 35.2 million. In total, Group earnings were well above what we had planned. While earnings from the Construction segment did not meet our expectations, Equipment segment earnings were well up on budget.

In the Construction segment the trend varied. The year was again unsatisfactory for our specialist foundation engineering operations on the German market. Revenues were not substantively increased over the previous year, and some major projects posed problems because of inadequate price levels. Though the figures show an upturn in the German construction market, we have not yet felt the benefit. We had to cope with higher costs even though prices could not yet be increased. We made

18 2006 Group Management Report

great efforts to optimize processes in our domestic organization, consolidating our branch network structure for example, in order to reap the rewards of the expected upturn on the construction market. Specialist foundation engineering techniques serving discreet market segments, such as soil improvement by vibration, were grouped into lean, efficient business units. This has already delivered a marked improvement in earnings. The major construction works handled by our Projects Division in neighbouring Switzerland and France have since recently been handled by independent subsidiaries. In Germany we now have at our disposal a lean, flexible team to handle highly demanding large-scale projects. We have been extremely disciplined in offering our specialist foundation engineering services over recent months, so as not to carry the poor price levels over into the market recovery period. Although this means our orders in hand might be slightly down as the upturn in Germany takes hold, our strategy will ensure improved earnings from domestic business operations in future. The still difficult market conditions in Germany also continued to have a negative impact on business at our other German construction subsidiaries. SCHACHTBAU NORDHAUSEN GmbH increased its sales in the construction sector, but still made a slight loss on them. The overall profitability of SCHACHTBAU NORDHAUSEN GmbH is based on its supplies of structural steel to BAUER Maschinen GmbH. SPESA Spezialbau und Sanierung GmbH pursued a strategy of consolidation in the year under review. Sales were reduced slightly, while the trend in earnings was upward. Our environmental business, under the umbrella of BAUER Umwelt GmbH, also had to battle the tough conditions on the German construction market. Essential restructuring measures at FWS Filter- und Wassertechnik GmbH resulted in that company making a loss. A noticeable loss on a soil remediation project meant earnings failed to move out of the red. The project development business of WÖHR + BAUER GmbH had a very satisfactory year. The major Angerhof project in the centre of Munich was leased out to the Linde corporation as its head office. As this project is not yet completed, the associated earnings will not be realized until a future date. Internationally, revenues increased well, and in line with our planning. At our international subsidiaries specifically, revenues (including non-consolidated subsidiaries and joint ventures) rose by 35.4 percent. A major contribution to that increase was made by our large-scale Péribonka project in Canada, in which very deep diaphragm walls were produced for a dam. The project was a great technical success. As the many add-ons to the work for this project meant it has not yet been possible to draw up a final invoice, no earnings have yet been realized from it. The further increase in revenues was achieved by our subsidiaries in the Far East and Eastern Europe. Healthy growth in sales was achieved in particular in Malaysia, Indonesia and Hong Kong, as well as in Romania and Bulgaria. All our other international construction subsidiaries saw business around the previous year's levels, so that overall earnings were again satisfactory. The United Arab Emirates business has continued to operate as a branch of BAUER Spezialtiefbau GmbH owing to the legal conditions in place. In Dubai and Abu Dhabi the construction boom con-

19 2006 Group Management Report

tinues apace, bringing with it very healthy levels of sales. There were major adjustment problems on the construction markets in those locations at the beginning of the year under review due to over- heating. A lack of available resources meant that all costs shot up; local companies attempted to recruit staff from the competition, in some cases by making substantial offers; steel and concrete prices rose dramatically. In view of those factors, we restricted our growth in the region, so as to avoid problems if the construction market should fall back again substantially. The initial downturn in earnings was recovered by the end of the year, enabling us to make a small profit in the countries concerned. We see the prospects for the future as still very bright, despite our general caution. In Africa, we made further progress in our operations in Sudan and Angola. The first construction phase of the Merowe dam project in Sudan was completed successfully, and preparations for the second – smaller – phase are well within schedule.

The Equipment segment operated in a very healthy international market in the year under review. With the growth in the global economy the world's construction markets grew strongly, resulting in a significant increase in demand for machinery, particularly for the specialist foundation engineering sector. Based on our worldwide presence and our outstanding product range, which sets the technology benchmark in virtually every sector, we were able to increase our market share slightly and so achieve somewhat more rapid growth than our competitors. Pleasingly, our growth was very healthy in almost all world market sectors. The extraordinary construction boom in the Middle East triggered particularly high levels of demand for our equipment. We are proud of our progress in terms of sales in Southern Europe, where we are going head-to-head with our largest competitor in the construction machinery sector. In the USA, the restructuring of our sales organization under the umbrella of the new subsidiary PILECO Inc. delivered a major boost to business. The greatest challenge faced by the Equipment segment was to handle the high levels of orders received. Capacities at all locations were expanded in response, with new jobs being created and substantial building work being undertaken. The branch operation KLEMM Bohrtechnik commissioned new manufacturing halls into operation, enabling its production to be increased by around 100 percent. EURODRILL GmbH has moved into its own premises, and now has the capacity it needs to handle the forecast trend over the coming years. At the Aresing and Schrobenhausen plants the factory halls were utilized more efficiently as a result of structural improvements to production processes, so there too productivity has been greatly enhanced. Internationally, new production capacities were created and existing capacities expanded. At the Kurgan facility in Siberia, Russia, the first series of smaller-size rotary drilling rigs was produced. Near Moscow, two small-scale plants for the production of drilling tools and undercarriage components were put into operation in cooperation with Russian partner firms. Production started at the end of the year. Our plant in Italy has substantially increased its production of undercarriages. In China, the capacity of the plants in Shanghai and Tianjin was greatly expanded. Our facilities in China now employ some 160 people in total as a result.

20 2006 Group Management Report

Our new activities in well drilling, geothermal exploration, offshore operations and mining also made good progress. PRAKLA Bohrtechnik GmbH, with its well and exploration drilling rigs, dramatically increased its revenues to over EUR 13 million. A large number of new developments and updates to the equipment range are opening up some very interesting opportunities. In the mining sector, we are operating machinery for our customers in South Africa, Namibia, Botswana and Angola, as well as in Canada. Very good results were achieved in Canada in particular, in the drilling of highly complex bores down to depths of 300 metres for exploration in the diamond mining industry. In order to exploit the growing opportunities in the geothermal field, a new sales unit was established. PILECO Inc., based in Houston, Texas, again enjoyed great success with its large piling hammers for offshore installations in the Gulf of Mexico. We were also very pleased with the performance in the year under review of our companies engaged in the manufacture of systems for mixing and separating bore suspensions for mobile piling rams, MAT Mischanlagentechnik GmbH and RTG Rammtechnik GmbH. EURODRILL GmbH, which produces rotary drives and hydraulic hammers both for other Group members and for external drilling rig manufacturers, was likewise very successful. New structures in our worldwide sales organization have made very good progress. The American market is coordinated from our subsidiary in Houston, Texas; the Far East from our base in Malaysia; and Europe and Africa are handled from our head office in Schrobenhausen. We have concentrated the management of our selling operations across the Arab countries in Dubai, enabling us to serve the booming markets of the region extremely efficiently. Overall our selling organization has adapted well to the increased demands of the market, and we are ideally equipped to meet the continuing rise in demand in a closely targeted manner.

The sales and earnings of the holding company are in line with budget. The in-house units providing central services to Group companies made further advances. The centralized administration of all IT systems, especially, demanded high levels of effort and commitment once again. Our goal in this area is to expand the deployment of our central IT systems to all our worldwide operations. It is a goal which still requires working on. All in all, 2006 was a highly successful year. The many new developments and the excellent level of orders in hand form a sound basis for continued strong success in future.

21 2006 Group Management Report

Development of the Group's divisions (including non-consolidated subsidiaries and joint ventures) in EUR million 2005 2006 Change Share Orders in Revenues Revenues against 2006 hand in EUR mill. in EUR mill. previous year BAUER Spezialtiefbau GmbH (BST) BST Germany 104.6 113.6 11.6 % 8.6 % • Subsidiaries, Germany 58.3 59.5 6.1 % 2.1 % • BST international 156.1 134.3 13.7 % -13.9 % ++ Subsidiaries, international 185.5 251.2 25.6 % 35.4 % + less intra-Group revenues and IFRS adjustments -51.1 -66.5 -6.8 % BST Group total 453.5 492.2 50.2 % 8.5 % +

Construction SPESA Spezialbau und Sanierung GmbH 16.5 16.3 1.7 % -1.0 % • SCHACHTBAU NORDHAUSEN GMBH (SBN) incl. SBN construction subsidiaries 67.5 77.0 7.9 % 14.1 % + less intra-Group revenues and IFRS adjustments -16.2 -10.0 -1.0 % Construction total 521.3 575.5 58.7 % 10.4 % + SBN - construction equipment 32.6 38.7 3.9 % 18.7 % + SBN Group total (construction & equipment) 100.1 115.7 11.8 % 15.6 % + BAUER Maschinen GmbH (BMA) 300.0 424.6 43.3 % 41.5 % ++ Equipment subsidiaries (specifically of BMA) 118.0 202.1 20.6 % 71.3 % ++ BMA Group total 418.0 626.7 64.0 % 49.9 % ++ Equipment less intra-Group revenues and IFRS adjustments -114.9 -202.0 -20.6 % Equipment total 335.7 463.4 47.3 % 38.0 % ++ BAUER Aktiengesellschaft (BAG) 18.4 24.7 2.5 % 34.5 % Other subsidiaries (specifically of BAG) 0.3 0.2 0.0 % -21.7 % Other Total other/services 18.7 25.0 2.5 % 33.6 % less intra-Group revenues and IFRS adjustments -51.3 -84.0 -8.6 % Group TOTAL (incl. non-cons. subsidiaries/joint ventures) 824.3 979.9 100.0 % 18.9 % + of which: Germany 270.4 282.2 28.8 % 4.4 % International 553.9 697.6 71.2 % 26.0 %

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

22 2006 Group Management Report

Breakdown of total Group revenues across the member companies of the BAUER Group

2005 2006 Shares < 50% detailed by percentage share in EUR mill. in EUR mill. BAUER Spezialtiefbau GmbH Group: BAUER Spezialtiefbau GmbH, Schrobenhausen (BST) 260.7 248.0 BAUER Umwelt GmbH, Schrobenhausen 25.4 19.3 BAUER und MOURIK Umwelttechnik GmbH, Nordhausen 5.2 10.5 FWS Filter- und Wassertechnik GmbH, Dunningen-Seedorf 14.6 15.5 WÖHR + BAUER GmbH, Munich (33 % share) 6.2 5.1 BAUER EGYPT S.A.E., Cairo, Egypt 10.2 12.8 BAUER Lebanon Foundation Specialists S.a.r.l., Beirut, Lebanon 6.0 8.6 Coastal Caisson Corp., Clearwater, Florida, USA 23.4 26.5 BAUER Foundations (IRL) Ltd., Dublin, Ireland 6.7 9.7 BRK-Speciális Mélyépitö Kft., Budapest, Hungary 7.5 7.4 BAUER Romania SRL, Bucharest, Romania 2.8 7.9 BAUER Spezialtiefbau Ges.m.b.H., Vienna, Austria 24.2 18.1 BAUER Funderingstechnieken B.V., SK Mijdrecht, Netherlands 2.7 6.8 BAUER Fondations Spéciales S.A.S., Strasbourg, France --- 5.2 BAUER Spezialtiefbau Schweiz AG, Baden, Switzerland 5.9 4.5 BAUER Gulf F.Z.E., Dubai, U.A.E. 4.4 6.6 Saudi BAUER Foundation Contractors Ltd., Jeddah, Saudi Arabia 3.1 4.7 BAUER Malaysia SDN. BHD., Petaling Jaya, Malaysia 23.4 24.7 BAUER Hong Kong Ltd., Hong Kong, PR China 12.6 14.8 BAUER Foundations Philippines, Inc., Quezon City, Philippines 5.7 5.2 P.T. BAUER Pratama Indonesia, Jakarta, Indonesia 5.3 12.6 BAUER Services Singapore Pte. Ltd., Singapore 0.3 1.4 BAUER Foundations Australia Pty Ltd., Brisbane, Australia 0.3 13.1 TERRABAUER, S.L., Madrid, Spain (30 % share) 9.6 10.2 Other investments (Bauer share only, 2006 spec. project in Canada) 32.1 51.1 Joint ventures, Germany (Bauer share only) 6.3 8.4 Intra-Group sales -51.1 -66.5 BST Group total 453.5 492.2

23 2006 Group Management Report

Breakdown of total Group revenues across the member companies of the BAUER Group continued 2005 2006 in EUR mill. in EUR mill. SCHACHTBAU NORDHAUSEN GmbH Group: SCHACHTBAU NORDHAUSEN GmbH, Nordhausen (SBN) 95.8 111.1 SBN subsidiaries 4.3 4.6 Intra-Group sales -8.4 -3.9 SBN Group total 91.7 111.8 SPESA Spezialbau und Sanierung GmbH, Nordhausen (incl. SPESA Korrosionsschutz und Beschichtungen GmbH) 16.5 16.3 BAUER Maschinen GmbH Group: BAUER Maschinen GmbH, Schrobenhausen (BMA) 300.0 424.6 BAUER Technologies Far East Pte. Ltd., Singapore, incl. subsidiaries 34.9 42.8 BAUER Mexico, S.A. de C.V., Mexico City, Mexico 1.5 5.5 BAUER Equipment USA, Inc., Mc Kinney, USA 4.3 --- PILECO Inc., Houston + Pilemac Inc., Livermore, USA 1.7 36.2 BAUER Technologies South Africa (PTY) Ltd., Cape Town, incl. subsidiaries 1.2 2.1 MAT Mischanlagentechnik GmbH, Immenstadt 8.8 11.0 RTG Rammtechnik GmbH, Schrobenhausen 8.2 21.2 PRAKLA Bohrtechnik GmbH, Peine 8.1 13.1 EURODRILL GmbH, Olpe 6.4 10.2 BAUER Mietpool GmbH, Schrobenhausen 8.8 8.4 BAUER Mietsystem GmbH, Schrobenhausen 11.3 19.4 BAUER Handelsgesellschaft mbH, Schrobenhausen 7.1 --- TracMec Srl., Mordano, Italy 6.8 7.9 BAUER Equipment of Canada Ltd., Edmonton, incl. subsidiaries 4.5 13.7 BAUER Maschinen KSM GmbH, Kurgan, Russian Federation --- 3.6 Other participations 4.4 7.0 Intra-Group sales -82.3 -163.3 BMA Group total 335.7 463.4 BAUER Aktiengesellschaft, Schrobenhausen 18.4 24.8 Other participations 0.2 0.2 Intra-Group sales -91.7 -128.8 GROUP TOTAL 824.3 979.9

24 2006 Group Management Report

Earnings, Financial and Net Asset Position

Development of balance sheet, financial and net asset position With an 18.7 percent increase in consolidated Group revenues stated on the consolidated income statement, the 13.2 percent increase in net assets shown on the consolidated balance sheet was kept proportionately very low. The equity ratio was increased to 34.6 percent, as a result of the in-flow of capital from our stock market listing and our strong earnings. It is an outstanding equity ratio by industry-wide comparison. Our target is to keep the rate above 30 percent. All our investment plans are aligned to that target. With this boost to shareholders' equity, the financial and net asset position of the Group has improved greatly in all segments. The ratio of net assets shown on the consolidated balance sheet to consolidated Group revenues was also improved, from 73.9 percent to 70.4 percent. This demonstrates our increasing capacity to achieve rises in revenue based on proportionately lower increases in fixed assets and working capital. The very intensive investment activities planned to expand our production capacities over the next two years will see the ratio drop somewhat. After that time, we plan for it to improve again. The substantial increase in shareholders' equity enabled relative financing from borrowings to be reduced. Both non-current debt and current liabilities have been cut, despite the strong sales growth. There were no further major changes to the balance sheet structure. With regard to the individual items on the balance sheet, the following changes should be noted: On the Assets side: • Payments on account and assets in course of construction: The capitalization of the new buildings constructed for KLEMM Bohrtechnik GmbH, charged at EUR 4.2 million in the previous year, were more than balanced by new assets under construction. Major items included in this are the work on the new administration block at the Schrobenhausen head office location by BAUER Spezialtiefbau GmbH (EUR 2.6 million), and building work at PILECO Inc. (EUR 0.7 million) and SCHACHTBAU NORDHAUSEN GmbH (EUR 0.4 million). • Land, land rights and buildings: This item has increased by EUR 10 million. Key items within it include a new factory site for Coastal Caisson Corp. in Florida (EUR 1.5 million), workers' accommodation in Dubai (EUR 2.1 million), plant extensions by KLEMM Bohrtechnik GmbH (EUR 4.3 million), a new plant for PRAKLA Bohrtechnik GmbH (EUR 2.6 million) and plant extensions at BAUER Maschinen GmbH (EUR 1.5 million). • Investments accounted for using the equity method: Investments in exploration firms for the mining business of BAUER Maschinen GmbH in Canada were mainly posted in this respect. • Participations: The increase in participations relates primarily to the acquisition of approximately 15 percent of Mostostrojindustrija, Moscow. This acquisition is a strategic move providing us with a holding in our long-standing business partner in Russia. It is in cooperation with this company, too, that the new machinery manufacturing plants near Moscow are being operated.

25 2006 Group Management Report

• Raw materials and supplies: The EUR 12.5 million increase in this item results primarily from the growth in the machinery manufacturing business. A lack of delivery capability from component supply markets meant that inventory levels had to be increased. Key elements relate to BAUER Maschinen GmbH (EUR 5.2 million), the plants in the Far East (EUR 3 million) and SCHACHTBAU NORDHAUSEN GmbH with its machinery portfolio (EUR 2.4 million). The increase in inventories nevertheless failed to outstrip the growth of machinery manufacturing business. On the Equity and Liabilities side: • Shareholders' equity: Of the increase in shareholders' equity, an amount of EUR 45.1 million results from the net in-flows in connection with our stock market listing on July 4, 2006 (see also Statement of Changes in Equity). Excluding those in-flows, the equity ratio would have increased from 26.1 percent to 27.6 percent. Including the in-flows from the listing, the equity ratio is now 34.6 percent. • Effective income tax obligations: The very good result achieved meant that provisions for income tax had to be increased by EUR 7.5 million. All other balance sheet items developed in line with the development of business.

The cash flow statement shows a decrease in net cash from operating activities, down from EUR 61.2 million in the previous year to EUR 39.0 million. The difference mainly relates to the following changes compared to the previous year's figures: • Inventories increased by EUR 15.7 million more than in the previous year. This development is largely due to the growth in sales. • Trade payables increased by just EUR 3.6 million, a substantial EUR 8.7 million less than the previous year's increase, because trade payables at the year-end were paid to a greater extent than normal by virtue of the Group's very healthy liquidity position. • Income tax expenditure was EUR 5.4 million up on the previous year.

Investment activities increased by EUR 15.8 million more than in the previous year, with the increase primarily relating to property, plant and equipment. The in-flow of funds from the stock market listing in the past year resulted in a positive cash flow from financing activities of EUR 11.7 million (previous year EUR -25.1 million).

Key earnings components The earnings of the Group were very substantially improved in 2006. Relative to the previous year, the ratio of profit before tax to shareholders' equity (shareholders' equity at the start of the period plus pro rata in-flow from stock market listing) increased from 23.6 percent to 34.7 percent. With regard to the profit after tax, this ratio changed from 15.2 percent to 20.6 percent. The return on sales after tax (relative to the in-come statement revenues) improved from 2.6 percent to 4.1 percent. Our aim is to stabilize these ratios at the levels achieved.

26 2006 Group Management Report

The net debt to EBITDA and EBITDA to net interest coverage ratios, which are of great significance to rating agencies, also improved markedly: Net debt / EBITDA: 2005: 2.2; 2006: 1.5 EBITDA / net interest coverage: 2005: 5.2; 2006: 7.6 Overall, EBIT was increased by 53.7 percent. EBITDA rose by 29.9 percent from EUR 94.8 million to EUR 123.2 million, reaching an excellent 13.5 percent (previous year: 12.3 percent) of total consolidated sales. By virtue of the positive trend in the previous year, our rating with Standard & Poor's has already been upgraded to BB/outlook positive. Personnel expenses rose by just 12.7 percent in the year under review. Owing to the substantial growth, increased use was again made of subcontractors and short-term staff, resulting in an increase in expenditure in that area. The fact that the cost of materials also rose by a disproportionately small amount relates to the order structure of a specialist foundation engineering company. In specialist foundation engineering projects, the proportionate cost of materials depends heavily on the techniques applied, and so can vary very widely. This results in major fluctuations in material expenditure. The small increase in depreciation and amortization results from the significant growth in business, which was achieved largely on the basis of existing capacities. With the ongoing investment projects, depreciation and amortization in future will again increase in line with the development of business. The financial result improved by EUR 2.2 million, due to the effect of the stock market listing and based on improved customer payment and better terms achieved on borrowing markets. Income tax expenditure increased from 35.5 percent of profit before tax to 40.7 percent. This change results from back-payments of tax arising from completed audits of major German companies and from non-tax-deductible value adjustments. In the medium term the tax ratio will be lower than it was in 2006. The Group's earnings improved primarily in the Equipment segment. Because of the weakness of the German market, and resulting from a value adjustment in respect of the international construction projects business, earnings in the Construction segment fell by EUR 4.0 million. By contrast, the earnings of the Equipment segment increased by EUR 29.8 million.

Trend in orders received At the year-end the Group held orders in hand totalling EUR 422.4 million, 22.0 percent above the previous year's level. The figure at the end of February 2007 was also well up on the previous year comparative period, increasing by 11.1 percent from EUR 386.8 million to EUR 429.8 million. The orders in hand provide all Group companies with a sound foundation to achieve the levels of sales budgeted for 2007. Orders in hand are particularly healthy in the Equipment segment. Unfortunately, high demand in this segment means delivery lead times are lengthy, as we are experiencing delays from our component suppliers due to the high level of business activity.

27 2006 Group Management Report

Overall, the net asset and financial structure of the Group, as well as earnings, have developed in a highly positive manner, boosted also by the stock market listing. This provides an outstanding basis for the achievement of our further ambitious goals.

Sustainability

Human resources The companies of the BAUER Group worldwide employed 5,541 on average over the year under review (previous year 5,155), distributed mainly across the major subsidiaries of BAUER AG (BAG), BAUER Spezialtiefbau GmbH (BST), BAUER Maschinen GmbH (BMA), SCHACHTBAU NORDHAUSEN GmbH (SBN) and their affiliates, as well as at SPESA Spezialbau und Sanierung GmbH (SPESA), as the following table shows. The rise in the number of employees was less than the rise in sales. Fluctuations in personnel requirement within the individual fields of business were balanced by intra-Group exchanges and, in the Equipment segment, by more widespread deployment of short- term staff.

Employees of the BAUER Group 2005 2006

BST Group • Germany 881 857 (of which apprentices) (50) (42) • International 2,304 2,530 (of which short-term staff) (777) (950) BMA Group • Germany 784 865 (of which apprentices) (49) (55) • International 188 270 SBN Group • Germany only 669 707 (of which apprentices) (41) (44) SPESA 165 141 BAUER AG and others 164 171 (of which apprentices) (18) (20) Group TOTAL 5,155 5,541 of which • Germany 2,505 2,580 • Germany, apprentices 158 161 • International 2,492 2,800

28 2006 Group Management Report

Personnel development in the Group Total: 5,541

5600 161

4800 Apprentices 4000

3200 Industrial, incl. 3,491 short-term staff 2400

1600

800 Salaried staff 1,889

0 1985 1988 1991 1994 1997 2000 2003 2006

Our employees are essential to our future success. Motivation and training enhance skills and pro- mote greater employee commitment, and so are key to the sustained success of the Group. By pro- moting independence and extending decision-making competencies at management level, employees are brought to identify more closely with the Group, thereby ensuring a low personnel fluctuation rate. Recruitment efforts were intensified over the last year as a pre-emptive measure to counter the forecast shortage of skilled staff in Germany in future. An integral element of the human resources work of the BAUER Group has always been a strategic approach to personnel development across the entire hierarchy. Apprenticeships were widely operated. Targeted marketing to centres of higher education aimed to recruit graduates at an early stage in their careers. More than 30 dissertations were supervised, primarily in the fields of construction engineering, mechanical engineering and electronics, electrical and electronic engineering and IT, business studies and environmental engineering, and over 130 practical trainees were engaged in Germany and abroad. Close contacts with higher education institutions in Eastern Europe were again fostered. In 2006, 50 apprentices (previous year 44) took up places within our Group in Germany, in commercial/technical and industrial fields. Of the total of some 161 apprentices (previous year 158), 42 (previous year 48) successfully completed their apprenticeships. Many of them were taken on in permanent employment. In order to establish and maintain the long-term loyalty of our technical specialists, know-how carriers and management staff, to provide a continuous stream of successor management and to enhance employee qualification levels, Bauer offers an extensive range of seminars, courses and pro- motion-targeting training measures. Expertise in the construction and mechanical engineering fields

29 2006 Group Management Report

is promoted and developed in a practice-oriented manner in collaboration between internal tutors and external consultants. Teaching of more generalized knowledge and skills, such as in the areas of safety and environment, legal affairs and IT, complements the specialist technical training provided. This process of ongoing qualification not only provides the company with future know-how in order to safeguard stable growth, it is also a key factor in terms of employee motivation and satisfaction.

Employee fluctuation rates of BAUER AG, BAUER Spezialtiefbau GmbH and BAUER Maschinen GmbH

2.0 % 1.8 % 1.8 % 1.5 % 1.4 % 1.3 % 1.0 % 0.9 % 0.5 %

0 % 2002 2003 2004 2005 2006 Source: BAUER Social Report 2006

In the year under review BAUER AG for the first time introduced a management system aimed at enhancing health and safety in operation of plant and machinery, devised by regional industrial companies in collaboration with the state of Bavaria's business regulatory authority and the Bavarian Ministry of the Environment, Health and Consumer Protection. With the Occupational Health and Risk Management System (OHRIS), health and safety at work is incorporated systemati- cally and permanently into the company's structures and processes. In order to implement OHRIS, the company's existing occupational safety management system was subjected to a comprehensive audit. On February 14, 2007, BAUER AG, BAUER Spezialtiefbau GmbH and BAUER Maschinen GmbH were entered in the register of accredited companies lodged with the business regulatory authority of the regional government of Upper Bavaria.

Environmental protection Ecologically sound practices and active environmental protection are becoming more and more key to corporate success. We have aligned our operations to those ends in virtually all areas of the Group. We operate in accordance with clearly defined environmental management systems, which at our major locations are subjected to regular external environmental auditing. We were one of the first companies in Bavaria to be certified to the EU Eco Audit system. We have also qualified as partici-

30 2006 Group Management Report

pants in the "Umweltpakt Bayern" Bavarian environmental initiative, aimed at ensuring environmentally sustainable economic growth in the region. For BAUER Maschinen GmbH and BAUER Spezial- tiefbau GmbH environment reports are published at regular intervals. The reports also set out the key material flows caused by those companies' activities. Our specialist environmental engineering companies are members of industry monitoring collectives, ensuring that work is always carried out in accordance with the highest demands. SCHACHTBAU NORDHAUSEN GmbH is routinely certified by certification body DQS GmbH to DIN EN ISO 14001 in respect of its efficient environmental management system. Training and internal audits enhance the environmental awareness of all employees, and environmental concepts are formulated into corporate goals on an annual basis. As an example, in the past year the in-house heating was converted to a geothermal system. All major company locations maintain and operate facilities for the orderly separation of waste materials. This enables us to dispose of our residual materials and waste in a cost-effective and ecologically responsible manner. The designers of our machinery incorporate ecological considerations, such as low noise and fuel economy, into their design concepts. The use of environmentally sustainable materials and service products, such as biodegradable oils, means our customers are offered machinery which can be deployed in an environmentally responsible way. Through our environmental engineering companies we are making a major contribution to the elimination of environmental pollution. The BAUER Environment Group has high levels of know-how in the treatment of contaminated ground water, the clearing of soil pollution (such as beneath filling stations) and the biological treatment of sewage. In the desert state of Abu Dhabi we are currently constructing a biological sewage treatment plant. We are using an installation of this kind at our local work camp for test purposes. We operate three soil treatment centres in Germany, which primarily employ biological methods.

Research and development Many companies of the BAUER Group invested substantial sums in developing new construction methods and equipment. Key areas of focus in development activities were in large-scale rotary drilling rigs, in drilling tool technology, in small boring equipment in the field of anchoring and high- pressure injection, in diaphragm wall technology and in measuring technology for purposes of quality control. With regard to smaller drilling rigs, our focus was on the development of machinery for geothermal drilling, with a particular view to ensuring high flexibility of deployment. In terms of well drilling rigs, we are working on machinery able to drill at depths of several thousand metres. There is also increasing demand for well drilling rigs for exploration drilling. Through our new company PILECO Inc. in the USA, the field of low-frequency piling has again been brought much more into focus. New developments by our machinery manufacturers include a crane tailored to the needs of specialist foundation engineering.

31 2006 Group Management Report

Capital investments Additions to the tangible assets of BAUER Aktiengesellschaft in the 2006 financial year totalled EUR 1.0 million, against depreciation totalling EUR 1.2 million. The BAUER Group invested EUR 61.1 million (previous year EUR 51.1 million) in property, plant and equipment in financial 2006. Depreci- ation, including depreciation of current assets, across the Group totalled EUR 50.2 million (previous year EUR 47.3 million). The focus of investments was on rationalization and extension of the machinery portfolio. A substantial portion of investments were made in Germany, as well as exten- sively in international operations. Further investments were made primarily in the production plant for the manufacture of drilling rigs at the BAUER Maschinen GmbH facility in Aresing. In addition, capacities were expanded at MAT Mischanlagentechnik GmbH in Immenstadt and SCHACHTBAU NORDHAUSEN GmbH in Nordhausen. New factory halls were built at PRAKLA Bohrtechnik GmbH in Peine and at PILECO Inc. in Houston, Texas. In the United Arab Emirates, employee accommodation and a new works site were constructed. At the Schrobenhausen location, the construction of a new administration block, involving an estimated investment of EUR 15 million, was begun. Ongoing capital investments were funded primarily by cash flows from operating activities, as well as from cash flows from borrowing.

Follow-up Report

No matters of special note occurred after the end of the financial year.

Risk Report

Importance of our integrated risk management system In our business operations we are exposed to risks inextricably linked to our commercial activities. Since our construction and machinery manufacturing businesses are of a differing nature, there are by definition also marked differences in the assessment and focus of handling of individual risks. All serious risks are collated at Group level in the holding company BAUER AG, considered centrally by the Management Board and reported to the Supervisory Board. We counter our risk by means of a comprehensive risk management system which is an integral component of our business processes and corporate decision-making, and as such is embedded in our Group-wide planning and controlling process. Our system of risk management aims to identify at an early stage, assess and, by means of appropriate measures, manage the key strategic and operational risks to which our Group is exposed. Moreover, Group-wide planning, control and reporting processes are subject to continual review in

32 2006 Group Management Report

terms of their efficacy and efficiency. Consequently, we regard the risk management system as an integral component of our overall management system. All processes which are subject to legal requirements, stipulated centrally by the Management Board or senior management or designated as requiring mandatory approval are bindingly documented in our Management Handbook, and are available to our employees in regularly updated form on the Intranet. We have designated risk managers whose role it is to expand the substantive content of our risk management system and, in conjunction with the management of the individual Group companies, to make it accessible to everyone within the organization in terms of establishing and maintaining a "risk culture". This monitoring approach means they also help to ensure the conformance of processes and the functionality of the internal control system. Our risk management system is also subjected to routine review by our auditors. Their suggestions are used to improve the system.

Market and project risk Our home market Germany continues to be overshadowed by the crisis in the construction sector. As the upturn noticeably sets in, though still with barely profitable price levels, Bauer has responded clearly by expanding its international business and by further reducing the proportion of total Group sales generated in Germany. Based on adjustments to capacity in the German construction sector, on measures to enhance the efficiency and efficacy of our processes and structures, and on the intro- duction of our project risk management system, we are well prepared to meet the demands of the future. The aforesaid project risk management system primarily ensures that projects are costed, taken on and executed at appropriate levels of profitability, particularly in this period of market recovery. As a result, project risks are largely avoided or controlled. The member companies of the BAUER Group are involved in a number of legal cases in connection with their regular business activities. These relate primarily to the construction sector, in which court disputes relating to labour cost and damages claims are routine. Allowance is made in the accounts for risks relating to court cases by means of appropriate assessment of claims and the creation of adequate provisions. On our markets outside Germany, our successful strategy of internationalization means that there is no serious risk to the Group as a whole. Moreover, in the event of risk in a specific country we are structurally capable of relocating rapidly to another country and continuing operations at the new location.

Procurement risk In the Equipment segment we manufacture construction machinery for the specialist foundation engineering sector. As worldwide demand for construction machinery continues to grow strongly, we are

33 2006 Group Management Report

exposed to a growing risk of dependency on suppliers of the parts and components we need to pro- cure. The focus of our measures in this respect is on searching for alternative sources and on agree- ing long-term purchase contracts with subcontractors at fixed prices. This is helped by the fact that, as well as in Germany, we also operate plants in Russia and China, and so it is easier for us to develop those procurement markets too. In the Construction segment, raw material prices and – especially in Germany – subcontractor prices are rising. By means of preventive project-based financial controlling as part of our project risk management system, we are able to cost these factors into orders and thus successfully counter risk impacting on project earnings.

Insurance loss risk Insurable risks, including third-party liability, fire or machinery breakdown and other comparable risks, are covered by means of appropriate insurance policies. We also work continuously to avoid, or at least minimize, such loss by means of appropriate measures and organizational precautions.

Financial risk The Group's liquidity is adequately safeguarded based on available cash in hand and bank credit balances, and above all by unused lines of credit. By the discounting of promissory notes through BAUER AG to an amount of EUR 43.5 million in the 2005 financial year, utilization of lines of credit was reduced correspondingly. In the year under review a further in-flow of liquidity totalling EUR 45.1 million was achieved by the capital increase associated with the stock market listing. These broad-based financing instruments have placed the Group's finances on a sound long-term footing which adequately safeguards the existing business and the medium-term growth of the Group. We reduced risks arising from interest rate fluctuations by entering into transactions with long interest rate fixes wherever possible, and also by means of interest rate hedging, such as swaps. Liquidity is monitored and controlled centrally within the Group by means of a liquidity controlling system. As a result, any liquidity risks are detected at an early stage, enabling them to be countered by suitable measures. We counter foreign exchange rate risk primarily by providing financing to our subsidiaries on a local basis in their regional currencies. We also make use of derivative hedging instruments, though merely as safeguards and not for speculative purposes. The risk of payment default tends to be high in the construction industry. In Germany we counter such risk by means of credit insurance and by stringent credit risk management. Outside Germany, we select our potential customers strictly according to criteria of creditworthiness, and lay down short payment periods. Despite these measures, it is not possible to avoid payment defaults altogether. By suitable measures we are, however, able to keep them at a stable low level. In the equipment sector, our contracts stipulate retention of title or payment terms which safeguard payment on delivery of the equipment. In this sector payment default is less relevant.

34 2006 Group Management Report

Personnel risk Personnel risk may generally arise from untrained new recruits, inadequate personnel qualification levels or lack of employee motivation, or may be related to the age structure within the company. These are strategic risks which we monitor with great diligence. We are prudent in the selection and recruitment of new staff. Moreover, our employees are offered a wide range of induction, qualification and ongoing training programmes, with regular one-to-one reviews in order to ascertain individual need. Fluctuation rates were again very low in 2006, and represent an affirmation of our personnel policy. Our stock market listing made us an even more attractive employer. Consequently, no major risks are currently discernible in the personnel sector.

IT risk The Group's operational and strategic management is largely dependent on our functional IT systems. Security to prevent data loss or unauthorized access, as well as to safeguard system and data availability, is ensured by means of state-of-the-art hardware and software and building services technology. A consistently applied emergency plan counters the risk of failure due to mechanical effects. No significant IT risk has occurred.

Overall risk In the past financial year no risks were discernible which, either individually or collectively, may have endangered the continued existence of our Group. From the current viewpoint, no such risks are discernible in future either.

Outlook

The BAUER Group has enjoyed a very good start to 2007. Orders in hand in all areas are at least good, and in some areas very good. In the German construction sector, we have still not yet felt the benefit of the improving market situation in our business. We do, however, expect price levels on major projects to improve from the early summer onwards. The small-scale projects being carried out by our branches and the remediation projects of SPESA Spezialbau und Sanierung GmbH are already showing improved returns. Overall, we expect the German construction sector to develop positively for the Group over the coming years, with a modest increase in sales and a substantial improvement in earnings. This will bring the performance of the German construction business closer to the level of our international operations. Internationally, our specialist foundation engineering operations can look forward to a good year. The loss of revenues on our major project in Canada will be more than balanced by other markets. In the

35 2006 Group Management Report

Middle East, especially, a healthy trend is foreseeable. In all the other regions of the world markets are very lively. As well as having healthy levels of orders in hand, our sales teams are busy acquiring many large and medium-sized projects, entailing very good chances of further orders. New operations are planned this year particularly in Panama and Vietnam. On current forecasts, earnings from international construction operations will be up on the previous year. Our equipment manufacturing business continues to profit from the global upturn in the construction industry. At the construction machinery industry's largest trade fair, bauma, in Munich in April 2007, we will again be demonstrating to our customers the strength of our company and its products. A large number of new machines and our new crane series are sure to arouse a great deal of buyer interest. As the market trend is very consistently upward, we expect a further very substantial increase in our sales in the Equipment segment in the current year. The main impediment to this is the availability of parts and components from our suppliers. We are, however, convinced that we will be able to overcome that problem by major efforts. In order to handle the growth in sales, we have launched the largest investment programme in our company's history. Since capacities in the Equipment segment still do not meet the needs of expected future growth, intensive planning was undertaken in preparation for extensions to the plants in Nordhausen, Schrobenhausen and Aresing. At our company head office in Schrobenhausen we will be constructing new workshop and administration buildings, at a cost of some EUR 27 million in 2007, followed by a further approximately EUR 10 million in 2008. At the factory site of SCHACHTBAU NORDHAUSEN GmbH in Nordhausen we are planning to invest around EUR 18 million in building projects over the next two years, including some EUR 5 million in 2007. Since these extensions will still not meet forecast market demand, we are currently engaged in acquiring a new facility in America. Alongside expanding capacities, the key aim of this is to get closer to our customers and to hedge against the US dollar risk. We expect that our new products in the offshore, geothermal, well drilling and mining sectors will again make good progress this year. This will mean our machinery business will be less dependent on the construction industry, and will be well equipped in future to counter fluctuating trends on construction markets. For the Equipment segment we expect to see substantial growth in Group revenues, with a corresponding boost to earnings. Overall, we see the future prospects for our company marked by many opportunities, based on international market trends, our strategic approach, and our highly qualified workforce. We believe those opportunities will enable us to improve our businesses in a sustainable manner, ensuring further improvements in sales and earnings. Consequently, we expect the Group to continue its positive development through 2007 and 2008, possibly with some more minor company acquisitions. Consolidated Group revenues will rise by well over 10 percent in 2007. Earnings will be in line with that trend. Our medium-term goal is annual growth of between 5 percent and 10 percent, with a corresponding improvement in profitability. We believe we are well equipped to achieve that goal.

36 2006 Group Management Report

We do not see any existential risk or risk to future progress in our trading environment. We should, however, point out that future forecasts are based on assumptions and estimates of the company management. Such assumptions and estimates always entail a degree of uncertainty and risk, which may mean that actual performance differs from that forecast.

Schrobenhausen, March 23, 2007

BAUER Aktiengesellschaft

Prof. Dipl.-Kfm. Thomas Bauer Dipl.-Ing. Heinz Kaltenecker Chairman of the Management Board

Dipl.-Betriebswirt (FH) Hartmut Beutler Dipl.-Ing. (FH) Mark Schenk

37 Specialist Foundation Engineering, Germany

he end to what has been 12 years of recession in the German construction industry has finally come. Orders received in the core construction business are at last showing positive trends again. Price levels have unfortunately not yet followed this positive trend during the reporting period. Although better prices were achieved on smaller-scale and shorter-term projects, the same cannot yet be said of larger and longer-running projects. After 12 years of recession, there is still no firm confidence in a sustained market recovery. In our network of German branches, following some major organizational adjustments in recent years, we were able to maintain the previous year's level of sales and our profits, though still unsatisfactory, were improved, particularly from small and medium-scale projects. The Projects Division, originally operating only in Germany, expanded its operations into Switzerland and France, though in Germany it is suffering from the still poor price levels on large-scale public sector projects, combined with rising subcontractor and supplier prices. The key accounts in Germany on a national level were once again the motorway authorities, the waterways and inland shipping agencies as well as the national rail network operator Deutsche Bahn AG. At local level, the key accounts were the municipal underground, suburban rail and tram operators. We are seeing stronger demand from our industrial customers, doubtless due to the currently healthy state of the Production of the German economy in general. excavation pit and founda- As in the past, we again carried out a number of major projects in Germany during the reporting period, tion – partially behind a listed facade – for RTL in such as the excavation pit for the Moosach underground station in Munich, as a single-shell diaphragm Cologne wall. In Donaustauf, jet grouting was successfully deployed to stabilize the steps up to the Walhalla temple. In Neckarsulm, a new manufacturing hall for Audi was founded on bored piles, and in Brom- bach in the Odenwald region secant bores were cut in ultra-hard sandstone for a complex landfill site water drainage system. In Frankfurt, the excavation pit for the Hochvier project was produced by the top-down construction method with secant piled walls and central bored supports for four underground levels. In Cologne, the foundations for the new head office of broadcaster RTL were installed using bored piles. In Dortmund, the foundations for the new Schnettker bridge were improved by jet grouting. In Hanover, an excavation pit for ECE was produced using the innovative mixed-in-place method. In Eilenburg, a major section of the castle hill was secured and remediated in conjunction with our affiliate SPESA under difficult conditions using GEWI thread bar piles. We have utilized the difficult recent years on the German construction market to further specialize our organization at home and abroad, without lessening our close attention to customers' needs. In collaboration with the section for small and medium-sized projects and the large projects department as well as working together with in-house construction, structural engineering and machine engineering specialists, we consider ourselves well-equipped to profit substantially once again from the ongoing upturn in the German construction sector.

38 Expansion of the quay at the port of Rostock Excavation pit for ECE in Hanover

Foundation piles with low headroom in Allendorf

Diaphragm wall at the Grasbook site in Hamburg

Inlet for the Brenner base tunnel, Tyrol Construction of the Hameln municipal gallery in the town centre Foundation piles for motorway ring road, Sibiu, Romania

Extension of the retaining wall of the Karkheh Dam, Iran

5 hotel towers in Doha, Qatar Bridge foundation on Java, Indonesia

Foundation and excavation pit, St. Petersburg, Florida, USA Residential complex in Kiev, Ukraine

40 Specialist Foundation Engineering, International

AUER Spezialtiefbau GmbH was able to further enhance its international performance in many countries. New subsidiaries were established, among other locations, in Panama, Lithuania, Vietnam, India, Angola and Sudan. The US subsidiary Coastal Caisson was able to increase its revenue and earnings, and has outstanding levels of orders in hand to start the new year. In Canada, the Péribonka dam project was completed on schedule, and to the customer's complete satisfaction, with work on a techni- cally highly complex diaphragm retaining wall. In Europe, the subsidiaries in Ireland and the Netherlands improved both revenues and earnings. BAUER Spezialtiefbau Ges.mbH in Vienna, Austria, achieved full capacity utilization throughout the reporting period, and so was able to return a profit. Our work on the major project at Fritzens on the Brenner railway in the lower Inn valley will continue in 2007. Projects in the Czech Republic, Slovakia and Slovenia were also handled by the Austrian subsidiary. The Romanian subsidiary generated healthy revenue and outstanding profit. Revenue in Hungary was up, with a particularly strong increase towards the year-end. The subsidiary in Bulgaria also progressed well. Our subsidiary in the Ukraine, Bauer-Altis, also increased revenue, and has a number of attractive orders in hand for the new year. A new subsidiary was established to handle initial projects in Latvia. In the United Arab Emirates revenues fell slightly, due to delays on some large projects. Despite this, Production of diaphragm wall and load- bearing foundation elements for the Tugun results remain positive. Operations in Qatar were expanded. Saudi Arabia again achieved a very Bypass underpass, Australia healthy profit in meeting its budgeted sales target. Bauer Egypt contributed successfully to a trench cutting project in Turkey. Capacity utilization on the Egyptian market was to budget. The operations of our subsidiaries in Lebanon will be substantially cut back over the coming months because of the political risks, though it is planned that the company will remain active on the market at a low level. In South East Asia, our subsidiary in Malaysia suffered a slight decline in sales, though capacities for the coming year appear to be well covered at present. There are also good prospects for 2007 in Singapore. Capacity utilization in the second half of the year in Indonesia was very strong, and the subsidiary there has healthy levels of orders in hand to start the new year. High levels of orders were received in the Philippines, especially in the second half of the year. Projects in Hong Kong were completed to plan, though there are fewer prospects of new orders in the coming months. In Vietnam, the first piling contract was completed successfully. The subsidiary has been established, and expects to be awarded a major contract for the construction of an excavation pit in Ho Chi Minh City early in the new year. The contract for an underpass on a highway near Brisbane in Australia was completed successfully. In Sudan, a subsidiary was established in the capital Khartoum. Capacities are already taken up over the coming months. The diaphragm walling work for the Merowe Dam on the Greater Nile is scheduled to begin in April 2007. In Angola, the newly established subsidiary expects to be awarded some attractive contracts at the beginning of the year.

41 Specialist Construction

ur core competency in specialist foundation engineering has been successively added to over recent years by other specialist construction operations. This has continually enhanced our capability to deliver complete packages of works from within the Group. The specialist construction companies of the BAUER Group performed in a satisfactory manner in view of the still weak price levels in Germany. SCHACHTBAU NORDHAUSEN GmbH (SBN) demonstrated its high levels of technical skill with a number of impressive projects in the fields of bridge building, underground construction, plant manufacture and reconstruction, as well as in steel construction and mechanical engineering. The result is its slightly improved sales and earnings. With the completion of the pre-stressed concrete Abendtal bridge over the A38 motorway near Arenshausen, the composite steel bridge over the A38 Leipzig southern bypass and the Fensterbachtal bridge near Höcking, SBN has definitively established itself among the elite league of major valley bridge builders. The Reconstruction Division has established a good position for itself as a concrete remediation specialist based on its remediation of the Pöhl dam and of the Bleiloch pump-fed power station. The Schachtbau Environmental Technology Division handed over its third biogas plant on schedule, and so gained entry to the rapidly growing regenerative energy market. The Underground Construction Division strengthened its position as a niche operator in the sector by its completion and handover, to schedule, of the ventilation ducts for the Katzenberg and Lingenberg tunnels. The Bleicherode drift mine, in which SBN holds a 25 percent share, also made a good contribution to profit in the reporting period. The Steel Construction and Mechanical Engineering Division substantially improved both its sales and earnings, thanks to the outstanding demand for masts, lowercarriages and uppercarriages for the BAUER Group's equipment manufacturing operations.

SBN project: Preparation of SPESA Spezialbau und Sanierung GmbH built further on its position in the care of listed buildings and stainless steel pipes for installation in concrete remediation, and successfully expanded its southern market territory into Bavaria, Baden- of pipelines for the sand filtration plant at the Großlappen sewage Wuerttemberg and Switzerland. The company's healthy standing and the slowly recovering market give treatment plant in Munich grounds for a positive forecast with regard to profits, which are at present still lagging behind expectations. The BAUER Environment Group (BUG), headed by its parent BAUER Umwelt GmbH, and incorporating its three German branches, the German subsidiary FWS and the international subsidiaries in Hungary, the UK, Italy and the Emirates, continued to build its international business successfully. In the Leuna project, BUG was able to demonstrate its capabilities as a land remediator. The three soil remediation centres in Saxony, Thuringia and Bavaria were fully utilized, and made a major contribution to the project successes of the BAUER Environment Group. Our subsidiary WÖHR + BAUER GmbH aroused great attention among project developers with its key- note Angerhof project in a top location in the centre of Munich, and has enjoyed a good year's business. On a sound business footing, and with an excellent number of orders in hand, we expect the specialist construction business sector to continue developing positively.

42 SBN: Bleiloch pump-fed power station in the Thuringian Forest

SBN: Construction of the Fensterbachtal bridge on the A6 Wöhr + Bauer: Angerhof project, Munich

SPESA: Securing of the listed Löwenturm tower in Munich

BUG: Plant-based sewage treatment works, Abu Dhabi BUG: Soil remediation, Grasbrook site, Hamburg

BUG: Remediation of contaminated areas at the Leuna chemical plant site Drilling rig for extinguishing coal fires in China Retaining wall construction at Diavik Diamond Mine II

New: Grab for diaphragm walls First deployment of the QuattroCutter in Japan

BG 28 producing large-diameter bored piles for bridge foundations in Italy

BG 28 with built-on BV 1500 mm casing oscillator working on pontoon Equipment

he upturn in the construction equipment sector in 2005 was sustained through 2006. The global market for heavy construction machinery experienced double-figure growth in the year under review. European manufacturers all recorded growth rates of 20 percent and more. The European construction industry is sustaining its stable growth. The strongest drivers of that growth have been the new markets in Eastern Europe. The US construction industry was unable to sustain its several years of strong growth in 2006. The main reason for this was the decline in housing construction. Positive factors were growth in commercial building and in civil engineering. The construction sector in the Gulf region is performing positively, and that upward trend appears likely to be sustained. The Far East market, driven by the Chinese economy, also recorded growth.

Sales of Bauer Maschinen again increased substantially, especially in Southern and Eastern Europe The BAUER Maschinen Group shows at Bauma Shanghai, November 2006 (left); and in the Arabian Gulf states. The generally positive economic indicators in Europe were key factors truck-mounted TBG 12 drilling rig (right) in the level of new and replacement investment undertaken by construction companies. Innovative construction methods, such as soil mixing, enabled us to keep constantly one step ahead of the competition. Substantial increases were also achieved in sales of drilling rigs of all size classes. Ongoing development of the drilling rig as the base unit for virtually all specialist foundation engineering processes again proved to be the right strategy. Production of rotary drilling rigs and grabs at the Tianjin and Shanghai sites in China increased significantly over the previous year. Plans are under discussion to expand capacities again in 2007 in order to meet the demand from the Far East. The production of M-class drilling rigs, which began in 2005 in Russia, was highly successful over the course of the year under review. There too, plans are in hand to increase production figures in the next year. Developments in China, allied to its healthy market position in other Far East countries, enabled the BAUER Technologies Far East subgroup based in Singapore to achieve an above-average increase in sales and earnings.

45 Pileco factory, Texas Assembly of the MBG 12 in Kurgan, Siberia Eurodrill office block and assembly hall in Drolshagen

Bürogebäude und Montagehalle Eurodrill

New hall at Prakla Bohrtechnik Both the Klemm branch operation and the subsidiary Eurodrill moved into new production facilities in Peine (top); in 2006. Despite the relocation, sales and production increased very significantly. BG 25 C assembly hall in Tianjin, China (bottom) MAT Mischanlagentechnik for the first time generated revenues in the tens of millions. In order to have sufficient capacity for possible expansion of the site in the coming years, the adjoining plot, complete with factory areas, has been purchased. The subsidiary RTG Rammtechnik also reported record sales. The newly developed ram at the upper end of the size range was much acclaimed by the market. PRAKLA Bohrtechnik GmbH, with its well and geothermal drilling rigs, has made excellent progress. In December 2006 it moved into its new steel construction and assembly hall facilities. This means production can be increased further in order to meet market demand. The RB8 geothermal probe drilling rig presented at the 2006 in-house exhibition was launched very successfully onto the market. We were also very pleased with the progress of our subsidiary TracMec in Italy. It significantly increased production of undercarriages for BAUER Group companies, as well as for third parties. The integration of the Pileco corporation, acquired by BAUER in 2005 and based in Houston, Texas, USA, was completed smoothly. It has established itself as an excellent platform for our selling operations in America. The sustained very lively demand at the beginning of 2007 fills us with confidence that the equipment business of the BAUER Group will continue to make positive progress in terms of sales and earnings.

46 Diesel-powered hammer at Pileco, Texas RTG RG 19 T in Sydney Harbour, Australia

Eurodrill 90 and 200 kNm double rotary drive built onto the RG 23 S

Klemm anchor drilling rig with bucket magazine KR 806-2B

MAT desander for microtunnels Prakla RB 8 drilling rig for geothermal applications

47 The BAUER Share

Listed in the Prime Standard since July 4, 2006 Following the authorization issued by the Annual General Meeting of BAUER Aktiengesellschaft on April 28, 2006, the company's shares were listed for the first time as part of an Initial Public Offering (IPO) in the Prime Standard of the Frankfurt Stock Exchange on July 4, 2006. The approximately 8.9 million shares offered originated from the disposal of Deutsche Beteiligungs AG, from the sale of treasury stock of the company's subsidiaries, and from a capital increase. The members of the Bauer family sold no shares and following the listing they together, with a holding of over 48 percent, represent the largest single shareholder, in possession of almost half of the shares. The free float thus amounts to just under 52 percent. The capital increase and the sale of treasury Shareholder structure of BAUER AG stock brought the BAUER Group funds of EUR 45.1 million; the placement volume totalled some Before IPO EUR 145 million. Treasury stock 3.0 % Of the shares placed, some 92 percent were allocated to institutional investors in Germany and abroad. Around 8 percent of the placement volume was acquired by private shareholders in Germany. Bauer Deutsche The offer to private investors was allocated in conformance to the Principles for Allocation of Share family Beteiligungs AG 55.8 % 41.2 % Issues to Private Investors ("Grundsätze für die Zuteilung der Aktienemissionen an Privatanleger") issued on June 7, 2000 by the Commission of Exchange Experts at the German Federal Ministry of Finance. Every private investor's purchase order was allocated in full. This also includes the priority After IPO allocation to employees of the company, to whom approximately 1 percent of the placement volume was allocated.

Bauer Free float In response to the difficult market conditions immediately before and during the IPO, the shares were family 51.8 % offered at the lower end of the price span. The price span ranged from EUR 16.50 to EUR 21.50 per 48.2 % share offered. The placement price was ultimately EUR 16.75 per share. Just three days after the successful issue, the share price had increased to EUR 17.00, as a result of which the majority of the greenshoe was also exercised.

Steady rise from initial listing Following its listing, the price of the BAUER share rose steadily. On the announcement that the BAUER share was to be included in the SDAX preference index just two months after its initial listing, its price rose to EUR 20.40 by September 12, 2006, and on the share's inclusion in the index on September 18, 2006 the share was quoted at EUR 21.00. Following the adjusted profit forecast for 2006 issued on December 21, the share underwent something of a year-end rally. On the last trading day of the year the share price closed at EUR 32.30, representing a 93 percent gain on the issue price. The pleasing rise in the share price in 2006 reflects, not least, the highly positive progress of the company's business in the course of the year – increasing total Group revenues by just under 19 percent and profit after tax by more than 80 percent over the previous year.

48 Development of the BAUER share price in 2006 in % Bauer DAX MDAX SDAX 200

150 Key figures of the share 29.12.2006 Issue price EUR 16.75 4.7.2006 100 Year low EUR 16.60 18.7.2006 EUR 32.30 50 Year high 29.12.2006 Market capitaliza- EUR 553,331,300 tion at year-end 0 Proposed EUR 0.50 dividend Earnings per share EUR 2.17 (50)

03.07.2006 31.08.200614.11.2006 20.01.2007 29.03.2007

The average trading volume of the share varied very widely over the months, ranging from 20,691 shares in September 2006 up to 75,271 shares in December. Across the full period of our stock market listing in 2006, the average daily trading volume was 42 thousand shares. This ranked Bauer Share information 26th on the SDAX index at the year-end, with a weighting of 1.71 percent. ISIN DE0005168108 Since the stock market listing, the Management Board has held numerous meetings with analysts WKN 516810 and investors at the company's head office, and has given presentations on the company at road- Trading segment Official market, Frankfurt Stock Exchange shows in various European financial centres. A number of leading banks are currently monitoring our company's progress by way of analyses and regular reports, among them Deutsche Bank, Dresdner Kleinwort, Sal. Oppenheim and Bayerische Landesbank. Share indices , CDAX, Classic All Share, Prime All Share

Dividend of EUR 0.50 Euro per share proposed Share category No-nominal-value individual bearer shares The Supervisory Board and Management Board will recommend to the Annual General Meeting that Deutsche Börse B5A a dividend of EUR 0.50 per share be paid for the 2006 financial year. This corresponds to a dividend trading symbol rate of 25.1 percent of the profit attributable to equity holders of BAUER AG. Share capital EUR 73,001,420.45 The attractive return is intended to enable the shareholders of BAUER AG to participate in the suc- Number of shares 17,131,000 cess of the company and at the same time to safeguard the financing of the Group's targeted strategic growth.

49 Corporate Governance Report

Joint Report by the Management Board and Supervisory Board of BAUER AG on Corporate Governance BAUER Aktiengesellschaft ("BAUER AG" for short) is a public limited company (stock corporation) with headquarters in Germany. Consequently, its Corporate Governance is based on German law, specifically on legislation governing public limited companies, corporate codetermination and the capital market, as well as on the Articles of Association of BAUER AG. The shareholders assert their rights at the Annual General Meeting, where they also exercise their voting rights. Each share in BAUER AG entitles the holder to one vote. No shares with multiple voting rights or with preferential or maximum voting rights exist. The influence of the Annual General Meeting on the company's management is limited by law however. The Annual General Meeting can, as a matter of principle, only decide on matters of management when so requested by the Manage- ment Board, though the Management Board must submit fundamental management measures to the Annual General Meeting for a decision if a measure impinges to such an extent upon the membership rights of the shareholders and their asset interests as embodied in the shares they hold that the Management Board cannot reasonably presume to make the said decision at its own discretion. German company law prescribes a dual system of management for BAUER AG, whereby the Manage- ment Board manages the business and the Supervisory Board supervises the Management Board. It is not permissible for someone to be a member of both bodies. The Management Board of BAUER AG comprises four members. No changes to its personnel occurred in 2006. The Management Board manages the company's business operations at its own discretion, and represents the company judicially and extra-judicially. The rules of procedure laid down by the Supervisory Board for the Management Board specifies the areas of responsibility of the Management Board and its members. Half the members of the Supervisory Board are elected by the shareholders at the Annual General Meeting. The other half is composed of representatives elected by the employees at the company's locations in Germany. The Supervisory Board of BAUER AG was for the first time constituted according to the German Codetermination Act during the period under review, and in April 2006 was expanded from six members to twelve by means of an application for judicial approval of supplementary appointments. The Supervisory Board supervises and advises the Management Board, and par- ticipates directly in decisions of fundamental significance to the company. The Management Board provides the Supervisory Board with regular, detailed and prompt reports on all matters relevant to corporate planning and strategic development, on the course of business and on the company's position, including its risk management. In addition, the Articles of Association of BAUER AG set out specific Management Board measures which are subject to Supervisory Board consent. The duties of the Supervisory Board also include appointing and terminating appointments of members of the Manage- ment Board, and setting their level of remuneration. The Supervisory Board also reviews the annual financial statements of the parent company and the consolidated financial statements of the Group and reports to the Annual General Meeting on the results obtained.

50 The Supervisory Board has established three committees: the Presidial and Personnel Committee, the Audit Committee and the Mediation Committee. The Presidial and Personnel Committee is responsible in particular for contractual matters relating to the Management Board, and prepares the Supervisory Board's decisions on the appointment and termination of appointment of Management Board members. The Audit Committee deals with accounting matters, and prepares the choice of auditors by the Supervisory Board. The function of the Mediation Committee, in accordance with legal requirements, is to propose candidates for appointment to the Management Board when a previously proposed can- didate has not obtained the majority vote required by law. BAUER AG has laid down framework guidelines and management principles for the member companies of its Group in a Management Handbook, which represents the central system of control. The framework guidelines and management principles support a value-oriented approach to management and a long-term view of corporate culture. Shareholders, financial analysts, shareholders' associations, media and the interested public at large are kept regularly informed of the position of the company and of key changes to its business by means of quarterly reports and by the publication of an Annual Report incorporating the annual financial statements of the parent company and the consolidated financial statements of the Group, together with a combined management report. Information is also disseminated at events hosted by the company and its advisers as well as by means of teleconferencing. Furthermore, facts subject to mandatory notification and items of insider information subject to mandatory disclosure are made available to all shareholders and to the interested public at large in accordance with legal requirements. At December 31, 2006, 2,675,215 shares in BAUER AG (15.62 percent of all shares in issue) were held by members of the Management Board. At the same date, members of the Supervisory Board held 2,157,349 shares (12.59 percent of all shares in issue). Securities transactions subject to mandatory notification in accordance with the German Securities Trading Act (Wertpapierhandels- gesetz) totalling EUR 5,000 were undertaken by members of the Management Board and Supervisory Board (and related parties) in the 2006 financial year. The notifications were immediately published by BAUER AG. A list of the individual notifications in printed form is available free of charge from the BAUER AG Investor Relations department. As a matter of principle, no securities-oriented incentive systems exist for members of the Manage- ment Board or Supervisory Board of BAUER AG, or for Group employees in Germany. However, as part of the stock market listing of BAUER AG in the reporting year our workforce at the Group companies in Germany was provided with an employee share scheme offering them the opportunity to subscribe preferentially to shares at a discount on an initial tranche. On December 8, 2006, the Management Board and Supervisory Board of BAUER AG issued a declaration of conformity to the German Corporate Governance Code in accordance with section 161 of the German Corporation Act (Aktiengesetz) and published it on the company's website. Accordingly, BAUER Aktiengesellschaft complies with the recommendations of the German Government Commission relating to the German Corporate Governance Code as of June 12, 2006, with the following exceptions:

51 Corporate Governance Report

1. Item 2.3.3 of the Code will be complied with in future in view of the company's stock market listing in the 2006 financial year, so the Management Board will ensure the appointment of a proxy to exercise, under instruction, the voting rights of the shareholders. 2. The monetary remuneration paid to the members of the Management Board comprises fixed and variable elements. Contrary to item 4.2.3 of the Code, shares in the company with restrictions on sale extending over a number of years, share options and comparable schemes will not be awarded as elements of variable remuneration. In relation to item 4.2.4 of the latest version of the Corporate Governance Code, the total remuneration paid to each Management Board member will not be disclosed by name, as the Annual General Meeting held on April 28, 2006 voted by a three-quarters majority against such a provision. 3. Contrary to articles 5.1.2 and 5.4.1 of the Code, no age limit is specified for members of the Management Board or Supervisory Board. 4. At its meeting held on April 28, 2006, the Supervisory Board created further committees and as a result, by the creation of an Audit Committee in particular, established compliance with item 5.3.2 of the Code. 5. Contrary to item 6.6 of the Code, the Corporate Governance Report contained in the 2005 Annual Report does not give particulars of the ownership of shares in the company, or financial instruments deriving therefrom, held by members of the Management Board or Supervisory Board. 6. Contrary to item 7.1.2 of the Code, the consolidated financial statements were made public no later than 120 days after the end of the financial year and the interim reports in financial 2006 were made public no later than 55 days after the end of the respective reporting period. 7. In its 2005 Annual Report, BAUER AG published a list – complete with name, place of business and percentage shareholding – of third-party companies in which it holds an investment of material significance to the company, though contrary to item 7.1.4 of the Code the listing does not set out the respective equity and previous year's results. Furthermore, BAUER Aktiengesellschaft already conforms largely to the additional suggestions of the German Government Commission relating to the Corporate Governance Code.

Remuneration Report The remuneration report takes account of the provisions laid down in the German Commercial Code (Handelsgesetzbuch) and of the principles embodied in the German Corporate Governance Code, and forms part of the management report and group management report. The Management Board comprises four members. The conclusion, amendment and termination of contracts of employment and pension agreements, including definition of the structure and level of remuneration of the members of the Management Board of BAUER AG, has been delegated by the Supervisory Board to its Presidial and Personnel Committee. The structure of the remuneration system is additionally reviewed by the Supervisory Board.

52 Corporate Governance Report

The remuneration paid to the Management Board is composed of a fixed annual basic salary, paid in twelve monthly instalments, and an annual one-off performance bonus. In the financial year under review a special bonus was additionally paid. The bonus payments are oriented to the extent to which corporate and personal performance targets were met in the financial year, and are determined by the area of responsibility of the Management Board member in question, his or her personal performance, the performance of the Management Board as a body, and the commercial position, success and future prospects of the company, taking as a comparative the sphere in which it operates. The remuneration received by members of the Management Board for the 2006 financial year totalled EUR 1,650 thousand, including the remuneration paid by subsidiaries. Of that total, EUR 887 thousand was in fixed salary and EUR 670 thousand in bonus payments. EUR 93 thousand was paid in company pension contributions, allocated to defined benefit plans. The total remuneration includes benefits in kind arising from the private use of a company car for each member of the Management Board. BAUER AG has additionally taken out a D&O insurance policy covering its Management Board members. In case a Management Board appointment is terminated by the post-holder himself or herself for good cause, or in case the company terminates or does not extend the contract of a Management Board member, the contracts of the members of the Management Board include individual severance clauses which, in terms of accounting method, are oriented to the time the Management Board member concerned has been employed and which at present, with regard to one Management Board member, do not exceed an amount of two years' remuneration. In the 2006 financial year the Supervisory Board was expanded from six to twelve members. The net remuneration paid to the members of the Supervisory Board in the 2006 financial year totalled EUR 144 thousand, and was laid down in each individual case in the Articles of Association of BAUER AG by the Annual General Meeting. Each member of the Supervisory Board receives an annual fee of EUR 12 thousand, payable in December of each financial year, plus reimbursement of out-of- pocket expenses and any sales tax (VAT) liability incurred in performing the duties of a Supervisory Board member. The Chairman of the Supervisory Board receives twice that amount of remuneration, and the Deputy Chairman 1.5 times the amount. The basic remuneration amounts are increased by 10 percent for each membership of a Supervisory Board committee, provided that the committee in question was convened at least twice in the financial year. Membership of the Mediation Committee is excluded from these remuneration provisions. Changes to the Supervisory Board and/or its committees are taken into account in the remuneration proportionate to the respective member's time in office, and rounded up or down to full months based on the standard commercial rule. A contract for provision of legal advice, involving an annual remuneration of EUR 607.3 thousand, existed between BAUER AG and the attorney's office of Professor Dr. Englert, who was a member of the Supervisory Board until the end of April 2006. Dr. Karlheinz Bauer receives from BAUER Spezialtiefbau GmbH a monthly pension arising from a consultancy agreement and associated defined benefits plan as well as a fixed annual consultant's fee which in the 2006 financial year totalled EUR 111.5 thousand. BAUER AG has additionally taken out a D&O insurance policy covering its Supervisory Board members.

53 Corporate Governance Report

The remuneration paid to the individual members of the Supervisory Board is listed in the following:

excluding sales tax (VAT) and expenses (in EUR thousand) 2005 2006

Dr. Klaus Reinhardt 17 25

Wilken Freiherr von Hodenberg 17 15

Dr.-Ing. Dr.-Ing. E.h. Karlheinz Bauer 16 13

Gerardus N. G. Wirken 11 13

Robert Feiger 0 12

Dipl.-Ing. (FH) Elisabeth Teschemacher 11 12

Manfred Wagner 0 9

Norbert Ewald 0 9

Gerhard Riedelsheimer 0 8

Dipl.-Ing. Walter Sigl 0 8

Dipl.-Ing. (FH) Rainer Schuster 0 8

Ronald Hühne 0 8

Dr.-Ing. Sebastian Bauer 5 0

Prof. Dr. jur. Klaus Englert 11 4

Total 88 144

54 Report by the Supervisory Board

The Supervisory Board has given intensive consideration to the position of the company in the past financial year. The Management Board of BAUER Aktiengesellschaft has provided us with regular, detailed and prompt reports. We have continuously supervised and advised the Management Board and monitored all significant management measures undertaken. The year was marked by the listing of BAUER Aktiengesellschaft in the Prime Standard of the Frank- furt Stock Exchange and by the expansion of the Supervisory Board from six to twelve members. In order to increase the number of Supervisory Board members, the Management Board, in consulta- tion with the Supervisory Board, had in March 2006 submitted an application for judicial approval of supplementary appointments in accordance with section 96 subsection 1 and section 101 subsection 1 of the German Corporation Act (AktG) in conjunction with the relevant standards laid down by the German Codetermination Act (Mitbestimmungsgesetz). The Supervisory Board was subsequently expanded in number on April 28, 2006 on the occasion of a constituent meeting of the Supervisory Board. This decision saw the appointment of Manfred Wagner, Gerhard Riedelsheimer, Ronald Hühne, Walter Sigl, Robert Feiger and Norbert Ewald as new members of the Supervisory Board. Professor Dr. Klaus Englert retired his post on the Supervisory Board with effect from April 28, 2006. We would like to express our heartfelt thanks to him for his many years of service on the Supervisory Board. In his place, the Annual General Meeting elected Rainer Schuster to the Supervisory Board. Four further meetings of the Supervisory Board were held in the 2006 financial year, at which we gave thorough consideration to all matters of planning, business development and risk management relevant to the company. Each of the decisions of the Supervisory Board was voted upon by a high proportion of Board members, thereby ensuring a broadly-based decision-making process. The focus of our consultations was on the company's stock market listing, successfully concluded in July, and the associated increase in share capital. We also consulted on fundamental matters of corporate policy and of investment, financial and personnel planning, as well as considering specific business transactions which were subject to the consent of the Supervisory Board pursuant to legal requirements or the Articles of Association of the company. The possible expansion of the activities of the BAUER Group into additional related fields of business was also considered in detail. At our meeting on December 8, 2006, we also reviewed the progress of Corporate Governance within BAUER Aktiengesellschaft. We were pleased to note that the company complied with the principles of Corporate Governance as set out in the declaration of conformity at the end of 2005. At the same meeting, we reviewed the efficiency of our supervisory activities as part of a self-evaluation process and published a new declaration of conformity. In this respect there were no conflicts of interest of members of the Supervisory Board performing advisory or statutory roles on behalf of customers, suppliers, creditors or other business partners. Between the meetings, and in preparation for meetings, the Management Board submitted written reports on matters of special note and provided detailed information on all important business transactions as well as on trends in key financial indicators. The Supervisory Board was also consulted, and its consent requested, on three separate issues by means of submissions circulated to each

55 Report by the Supervisory Board

member separately. Furthermore, all members of the Supervisory Board were informed of occasional verbal agreements made between the Chairman of the Supervisory Board and the Chairman of the Management Board with regard to specific aspects pertaining to the position and development of the company. As part of the reconstitution of the Supervisory Board, new committees were created: the Presidial and Personnel Committee, the Audit Committee and the Mediation Committee. In the course of the financial year meetings of the Presidial and Personnel Committee and of the Audit Committee were held. The Mediation Committee was not required to convene in fulfilment of its assigned function. The Presidial and Personnel Committee was convened at two meetings as well as by means of teleconferencing, during which primarily personnel matters and specifically assigned matters relating to the stock market listing were considered. The Audit Committee held two teleconferences and one meeting on the subject of the drafting of quarterly reports and also reviewed matters relating to accounting and to the independence of the auditors. One further meeting and one teleconference dealt with the preliminary audit of the annual financial statements of the parent company and the consolidated financial statements of the Group, including the management report and group management report, and with the proposal for the appropriation of profit. Consultations were also held on these occasions with the auditors regarding the drafting of the audit report. The annual financial statements of BAUER AG to December 31, 2006 and the consolidated financial statements of the Group, as well as the combined management report, were audited by the auditors elected by the Annual General Meeting and duly appointed by the Supervisory Board, Pricewater- houseCoopers Aktiengesellschaft und Wirtschaftsprüfungsgesellschaft, Stuttgart. The accounts were certified by the auditors without reservation. In the process, the auditors also inspected the Manage- ment Board’s risk management and monitoring system. Following detailed preliminary consideration in the Audit Committee, the auditors submitted the financial statements to all the members of the Supervisory Board. They were discussed in detail at the annual accounts review meeting of the Supervisory Board in the presence of the auditors. We concur with the statements made in the management report under the "Statutory conditions" heading relating to the composition of the subscribed capital, the restrictions on the sale of shares, the rules governing the appointment and termination of appointment of Management Board members, the rules governing amendments of the Articles of Association of the company, and the authority of the Management Board regarding the share capital approved in accordance with the Articles of Association of the company. The share capital of BAUER AG at December 31, 2006 totalled EUR 73,001,420.45, and is divided into 17,131,000 no-nominal-value ordinary bearer shares. All shares entail the same rights. Each share entitles the holder to one vote, and determines the shareholder's share in profit. In view of the existing equity base, there are at present no plans to exercise the remaining approved capital resulting from the stock market listing totalling EUR 1,998,579.55. The time restrictions on the sale of shares held by family members and the shares from the employee

56 Report by the Supervisory Board

share scheme relate to the stock market listing last year, and safeguarded the company's entry onto the market. We have reviewed the annual financial statements of BAUER AG and the consolidated financial statements of the Group, including the management report and group management report, as well as the proposal of the Management Board regarding the appropriation of net profit available for distribution. No objections were raised. We have duly noted the auditors' report, and concur with its findings. We have approved the annual financial statements of the parent company for the financial year ending December 31, 2006 and the consolidated financial statements of the Group, which are thereby confirmed. We concur with the content of the management report and group management report. Finally, the Supervisory Board has also reviewed the proposal of the Management Board regarding the appropriation of net profit available for distribution and concurs with its proposal. The Supervisory Board thanks the members of the Management Board, the Works Councils and all the employees of BAUER Aktiengesellschaft and its affiliates for their highly meritorious efforts and achievements in the past financial year. The commitment and high level of motivation of all concerned provides the essential basis for the continued success of the Bauer Group in future.

Schrobenhausen, April 20, 2007 The Supervisory Board

Dr. Klaus Reinhardt Chairman

57 Upper Iller river polder, intake structure near Immenstadt-Seifen Balance Sheet and Income Statement of BAUER Aktiengesellschaft in accordance with HGB

60 Balance Sheet of BAUER Aktiengesellschaft as at December 31, 2006

61 Income Statement of BAUER Aktiengesellschaft for 2006

59 Balance Sheet of BAUER Aktiengesellschaft as at December 31, 2006

Assets in EUR '000 31.12.2005 31.12.2006

A. Fixed assets I. Intangible assets 1,547 1,450

II. Property, plant and equipment 1,110 1,414

III. Financial assets 62,142 76,001

64,799 78,865

B. Current assets I. Receivables and other assets 21,273 48,358 (of which receivables from affiliated companies) (19,583) (46,038)

II. Cash at banks 45 109

21,318 48,467

C. Prepayments and deferred charges 38 98

86,155 127,430

Equity and liabilities in EUR '000 31.12.2005 31.12.2006

A. Shareholders' equity I. Subscribed capital 63,000 73,001

II. Capital reserve 10,470 39,781

III. Revenue reserves 512 512

IV.Net earnings available for distribution (of which profit carried forward 5,913 9,048 EUR 3,449 thousand; previous year: EUR 2,721 thousand)

79,895 122,342

B. Provisions 3,450 4,051 (of which provisions for defined benefit plans) (2,540) (2,735)

C. Liabilities 2,810 1,037 (of which liabilities payable to affiliated companies) (189) (145)

86,155 127,430

60 Income Statement of BAUER Aktiengesellschaft for 2006

in EUR '000 2005 2006

1. Sales revenue 15,937 17,185

2. Other operating income 221 1,883

16,158 19,068

3. Expenses for purchased services 1,265 899

4. Staff costs 8,539 9,455

5. Amortization of intangible assets and 1,024 1,197 depreciation of property, plant and equipment

6. Other operating expenses 4,581 9,006

15,409 20,557 Operating result 749 -1,489

7. Income from investments 2,061 5,403

8. Other interest and similar income 1,317 1,911

9. Interest and similar expenses 83 83

Financial result 3,295 7,231 Annual Financial Statements

10. Result from operating activities 4,044 5,742 2006 11. Income tax expense 843 131

12. Other taxes 9 12 13. Net profit for the year 3,192 5,599

14. Profit carried forward 2,721 3,449

15. Net earnings available for distribution 5,913 9,048

Consolidated Financial Statements of BAUER Aktiengesellschaft in accordance with IFRS

64 Income Statement of the BAUER Group for 2006

65 Cash Flow Statement of the BAUER Group for 2006

66 Balance Sheet of the BAUER Group as at December 31, 2006

68 Statement of Changes in Equity of the BAUER Group

70 Notes to the Consolidated Financial Statements of the BAUER Group for 2006

108 List of Group Companies

111 Auditors' Report

63 Income Statement of the BAUER Group for 2006 in EUR '000 Notes 2005 2006

1. Sales revenue *) (5) 717,493 835,351

2. Changes in inventories 8,584 18,642

3. Other income *) (6) 43,891 60,207

CONSOLIDATED REVENUES 769,968 914,200

4. Cost of materials (7) 446,420 516,900

5. Staff costs (8) 155,290 175,069

6. Depreciation and amortization (9) 47,353 50,206

7. Other operating expenses *) (10) 73,426 99,040

OPERATING RESULT 47,479 72,985

8. Financial income (11) 2,327 4,860

9. Financial expenses (11) 20,711 21,090

10. Share of the profit or loss of associates accounted for using the equity method 1,154 2,610

PROFIT BEFORE TAX 30,249 59,365

11. Income tax expense (12) 10,744 24,159

PROFIT 19,505 35,206

Profit attributable to minority interest 578 1,082

Profit attributable to equity holders of BAUER Aktiengesellschaft 18,927 34,124 in EUR Notes 2005 2006

Basic earnings per share (13) 1.32 2.17

Diluted earnings per share (13) 1.32 2.17

Average number of shares in circulation in financial year (basic) (13) 14,334,840 15,732,920

Average number of shares in circulation in financial year (diluted) (13) 14,334,840 15,732,920

*) Previous year figures have been adjusted; see Notes item (5)

64 Cash Flow Statement of the BAUER Group for 2006

in EUR '000 2005 2006

Cash flows from operating activities:

Profit before tax 30,249 59,365

Depreciation 47,353 50,206 Financial income -1,954 -967 Interest expense 16,855 17,370 Other non-cash transactions 672 -3,623 Result from the disposal of fixed assets -1,514 -1,748 Increase in provisions 7,282 3,467 Increase in trade receivables -27,743 -13,928 Decrease (previous year: increase) in receivables from construction contracts -5,927 451 Increase in other assets and in prepayments and deferred charges -3,488 -17,260 Increase in inventories -22,705 -38,452 Increase in trade payables 12,311 3,652 Decrease (previous year: increase) in liabilities from construction contracts 3,442 -2,892 Decrease (previous year: increase) in other current and non-current liabilities 12,356 -5,278 Cash and cash equivalents generated from day-to-day business operations 67,189 50,363

Income tax paid -5,983 -11,391

Net cash from operating activities 61,206 38,972 Consolidated Financial Statements

Cash flows from investing activities:

Acquisition of affiliated companies less net cash and cash equivalents procured -3,802 0 2006 Acquisition of property, plant and equipment and intangible assets -37,685 -54,819 Income from sale of fixed assets 9,295 10,116 Acquisition of financial assets (investments) 0 -3,304 Net cash used in investing activities -32,192 -48,007

Cash flows from financing activities: Payment of loans and liabilities to banks -42,896 -35,940 Proceeds from loans and liabilities to banks 49,282 31,662 Repayment of liabilities from finance lease agreements -14,924 -10,907 Inflows in respect of receivables from finance lease agreements 561 0 Inflows from the issue of shares (IPO) 0 46,835 Transaction costs, IPO 0 -2,519 Dividends paid -2,027 -2,442 Interest paid -16,432 -15,505 Interest received 1,329 473 Net cash used in financing activities -25,107 11,657 Net increase in cash and cash equivalents 3,907 2,622

Cash and cash equivalents at beginning of reporting period 10,614 14,521 Cash and cash equivalents at end of reporting period 14,521 17,143 Change in cash and cash equivalents 3,907 2,622

65 Balance Sheet of the BAUER Group as at December 31, 2006

Assets in EUR '000 Notes 31.12.2005 31.12.2006

A. NON-CURRENT ASSETS I. Intangible assets (14) 1. Concessions, industrial property rights and similar rights and values and licences in such rights and values 3,144 3,972 2. Capitalized software costs 184 397 3. Capitalized development costs 6,147 6,876 4. Payments on account 1,051 101 10,526 11,346 II. Property, plant and equipment and investment property (14) 1. Land, land rights and buildings 70,736 80,718 2. Investment property 516 1,462 3. Technical equipment and machinery 78,583 80,608 4. Other equipment, factory and office equipment 12,724 14,956 5. Payments on account and assets in course of construction 6,777 7,111 169,336 184,855

III. Investments accounted for using the equity method (14) 4,201 6,013 IV. Participations (14) 270 3,539 V. Deferred tax assets (15) 14,535 15,232 VI. Other non-current assets (16) 10,448 10,236 VII.Other non-current financial assets (17) 229 512 209,545 231,733 B. CURRENT ASSETS I. Inventories (18) 1. Raw materials and supplies 45,992 58,477 2. King piles, sheet piles 2,670 3,735 3. Finished goods and work in progress 82,999 92,025 4. Payments on account 408 2,119 132,069 156,356 II. Receivables and other assets (19) 1. Receivables from construction contracts 30,990 30,539 2. Trade receivables 157,067 163,648 3. Receivables from enterprises in which the company has participating interests 3,472 6,431 4. Other current assets 17,878 30,925 5. Other current financial assets 2,141 5,563 211,548 237,106 III. Effective income tax refund claims 1,127 1,379 IV. Cash and cash equivalents (20) 14,521 17,143 359,265 411,984

568,810 643,717

66 Equity and liabilities in EUR '000 Notes 31.12.2005 31.12.2006

A. SHAREHOLDERS' EQUITY (21) I. Subscribed capital 63,000 73,001 II. Capital reserve 10,470 38,404 III. Other revenue reserves 24,857 27,478 IV. Net earnings available for distribution 43,648 75,330 V. Minority interests 6,486 8,368 148,461 222,581 B. NON-CURRENT LIABILITIES (22) I. Non-current portion of liabilities to banks 98,532 99,993 II. Non-current portion of liabilities from finance lease agreements 27,095 24,632 III. Non-current bills of exchange 1,308 2,390 IV. Non-current portion of defined benefit plans (23) 33,314 35,203 V. Other non-current liabilities 2,211 2,522 VI. Other non-current financial liabilities 15,753 7,769 VII. Deferred tax liabilities 10,071 11,159 188,284 183,668

C. CURRENT LIABILITIES I. Liabilities (24) Consolidated Financial Statements 1. Current portion of liabilities to banks 61,526 58,153 2. Current bills of exchange 5,071 1,622

3. Advances received for orders 1,048 2,797 2006 4. Liabilities from construction contracts (19) 10,662 7,770 5. Trade payables 63,799 65,734 6. Liabilities to enterprises in which the company has participating interests 104 72 7. Current portion of liabilities from finance lease agreements 9,219 8,480 8. Other current liabilities 57,724 61,857 9. Other current financial liabilities 6,306 3,783 215,459 210,268 II. Provisions 1. Effective income tax obligations 6,378 13,874 2. Other provisions (25) 9,002 12,051 3. Current portion of defined benefit plans (23) 1,226 1,275 16,606 27,200

232,065 237,468

568,810 643,717

67 Statement of Changes in Equity of the BAUER Group from January 1, 2005 to December 31, 2006

Other revenue reserves and net e Subscribed Capital capital reserve Revenue reserves Currency translation

As at 01.01.2005 63,000 10,470 44,399 -4,942

Consolidated profit 0 0 18,927 0

Dividend payments 0 0 -2,027 0

Consolidation measures 0 0 -505 0

Exchange rate movements 0 0 0 4,180

As at 31.12.2005 63,000 10,470 60,794 -762

As at 01.01.2006 63,000 10,470 60,794 -762 Consolidated profit 0 0 34,124 0

Dividend payments 0 0 -2,442 0

Issue of new ordinary shares 10,001 29,311 5,609 0

IPO transaction costs, after tax 0 -1,377 -319 0

Consolidation measures 0 0 -1,110 0

Exchange rate movements 0 0 -181 -3,292

As at 31.12.2006 73,001 38,404 96,475 -4,054

68 earnings available for distribution Minority Total interests Reconciling item, IFRS Own shares

10,387 -1,914 7,005 128,405

0 0 578 19,505

0 0 0 -2,027

0 0 -1,511 -2,016

0 0 414 4,594

10,387 -1,914 6,486 148,461

10,387 -1,914 6,486 148,461 0 0 1,082 35,206

0 0 0 -2,442

0 1,914 0 46,835 Consolidated Financial Statements 0 0 0 -1,696

0 0 1,257 147 2006 0 0 -457 -3,930

10,387 0 8,368 222,581

69 Notes to the Consolidated Financial Statements of the BAUER Group for 2006

Accounting principles

BAUER AG is a stock corporation (Aktiengesellschaft) under German law. Its registered office is at Wittelsbacherstrasse in Schrobenhausen, and the company is entered in the Register of Companies of Ingolstadt under file reference HRB 101375. BAUER Aktiengesellschaft, in implementing section 315a of the German Commercial Code (HGB), has prepared its consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), based in London, as applicable at the balance sheet date and as admissible in the European Union. All the binding interpretations of the International Financial Reporting Interpretation Committee (IFRIC) applicable to the 2006 financial year are also applied. The previous year's figures have been determined according to the same principles. The consolidated financial statements were prepared in euros. Unless otherwise specified, all amounts are quoted in thousands of euros (EUR '000). The income statement was prepared according to the nature of expenses method. The consolidated financial statements of BAUER Aktiengesellschaft are prepared on the basis of historical cost, with the exception of the derivative financial instruments, which are stated at fair value.

The following standards, interpretations and amendments to existing standards have been adopted by the International Accounting Standards Board (IASB) but are bindingly applicable only as from financial years ending after December 31, 2006. The BAUER Group has not utilized the option of early implementation.

• In August 2005 IFRS 7, Financial Instruments: Disclosures and a corresponding amendment to IAS 1, Presentation of Financial Statements was published. The new disclosure and presentation standards are applicable to financial years beginning as from January 1, 2007. As only duties of disclosure are affected, the first-time implementation will have no effect on the net assets, financial position and earnings of the company. • Based on IFRS 8, Segment Reporting, issued in November 2006, segment reporting is shifted from the so-called "risk and reward" approach of IAS 14 to a management approach in terms of segment identification. The key factor in this is the information which is routinely made available to the so-called "chief operating decision maker" for decision-making purposes. At the same time, assessment of the segments is shifted from the financial accounting approach of IAS 14 to a management approach. IFRS 8 is bindingly applicable to financial years beginning on or after January 1, 2009. Earlier implementation is permissible. On its initial implementation by the BAUER Group, IFRS 8 will result in a change to segment reporting disclosures. • In November 2005 IFRIC 7, Applying the Restatement Approach under IAS 29, Financial Reporting in Hyperinflationary Countries was published. This interpretation contains guidelines on the application of IAS 29 where the functional currency of an entity is for the first time classified as hyperinflationary. IFRIC 7 is applicable to financial years beginning as from March 1, 2006. The interpretation has no effect on the future consolidated financial statements of the BAUER Group, as none of the consolidated companies has a functional currency classified as that of a hyperinflationary country, and nor is such a classification to be expected. • IFRIC 8, Scope of IFRS 2 was published in January 2006, and is applicable to financial years beginning as from May 1, 2006. IFRS 2, Share-based Payment is applicable to transactions in which an entity receives goods or services as consideration for a share-based payment. According to IFRIC 8, IFRS 2 is also applicable where the company is unable to identify the goods or services received clearly. It is not expected that IFRIC 8 will have any effect on the future consolidated financial statements of the BAUER Group. • IFRIC 9, Reassessment of Embedded Derivatives was published on March 1, 2006, and is applicable to financial years beginning as from July 1, 2006. According to IFRIC 9, the assessment as to whether an embedded derivative is to be accounted for separately from the underlying contract must be made at the time the contract is signed. Reassessment during the term of the contract is permissible only if the underlying contract conditions and the associated payment flows change significantly. This amendment is unlikely to have any effect on the future consolidated financial statements of the BAUER Group. • IFRIC 10, Interim Financial Reporting and Impairment was published on July 20, 2006, and is applicable to financial years beginning as from November 1, 2006. IFRIC 10 states that impairment losses relating to goodwill and certain financial assets recognized in interim financial statements and subject to a recovery requirement in accordance with IAS 36 or IAS 39 must not be reversed in sub-

70 sequent interim or annual/consolidated financial statements. Premature application of these interpretations would have had no substantive effect on the net assets, financial position and earnings of the company. • IFRIC 11, IFRS2 – Group and Treasury Share Transactions was published in November 2006 and deals with the question of how Group-wide share-based payments are to be accounted for, the effects of employee reassignments within the Group, and how share- based payments are to be treated where the entity issues treasury shares or must acquire shares from a third party. IFRIC 11 is applicable to financial years beginning on or after March 1, 2007. It is not expected that IFRIC 11 will have any effect on the future consolidated financial statements of the BAUER Group. • IFRIC 12, Service Concession Arrangements was published in November 2006, and deals with the financial accounting arrangements for public infrastructure services by private entities. The interpretation is bindingly applicable to financial years beginning on or after January 1, 2008. Earlier implementation is permissible. It is not expected that IFRIC 12 will have any effect on the future consolidated financial statements of the BAUER Group. We intend to implement first-time application of the standards and respective interpretations when they become bindingly applicable.

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

1. Scope of consolidation In addition to BAUER Aktiengesellschaft, the consolidated Group companies comprise those enterprises in which BAUER Aktiengesellschaft holds a direct or indirect interest enabling it to govern the said companies' financial and operating policies in such a way that the members of the Group draw benefit from the activities of the said companies (subsidiaries). The consolidation begins from the time the possibility of Consolidated Financial Statements control exists; it ends when such control no longer exists. Companies of which BAUER Aktiengesellschaft is able, directly or indirectly, to exercise a significant influence on the said companies' finan- 2006 cial and operating policy decisions (associated companies) are consolidated according to the equity method. This related to five companies in the financial year under review (in the previous year: three companies). Subsidiaries with differing balance sheet dates compile interim financial statements as per the Group balance sheet date. The two associated companies NuBa Equipment Ltd. and Nuna Drilling F.A.L.C. Ltd. draw up their annual financial statements to September 30. In the financial year, ErdWärmeNetz GmbH, BAUER Equipment Gulf FZE, BAUER Equipment of Canada Ltd., BAUER Maschinen KSM GmbH, BAUER Fundierungstechnieken B.V., BAUER Fondations Spéciales S.A.S. and the at-equity investments NuBa Equipment Ltd. and Nuna Drilling F.A.L.C. Ltd. in Canada were consolidated for the first time. The new consolidated companies are all newly founded companies.

Effective March 31, 2006, BAUER Handelsgesellschaft mbH was de-consolidated. Additionally, effective January 1, 2006, BAUER Equipment USA Inc. was incorporated into PILECO Inc. An overview of all consolidated Group companies is presented in the section headed "Major Participations of the BAUER Group at Decem- ber 31, 2006". On December 26, 2005 the remaining shares in Saudi BAUER Foundation Contractors Ltd. were acquired for a purchase price of EUR 78 thousand. With effect from October 1, 2005, 100 % of the shares in PILECO Inc. and Pilemac Inc., Houston, Texas, were acquired. A total cost of EUR 4,380 thousand was paid for this acquisition. The entire purchase price was paid in cash. In return, cash and cash equivalents totalling EUR 500 thousand were acquired. The acquisition resulted in an excess of BAUER's interest in the net fair value of the acquired net assets over cost in the amount of EUR 23 thousand, which was recognized directly in the income statement in 2005.

71 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

At the acquisition date the acquisition had the following effects on the financial position:

in EUR '000 01.10.2005

Effects at time of acquisition Non-current assets 5,873 Current assets 5,741 (of which cash and cash equivalents) (500) Non-current liabilities 2,321 Current liabilities 4,890

Assuming that PILECO Inc. and Pilemac Inc. had been acquired as at January 1, 2005, the following effects would have resulted in terms of the Group's sales revenue and earnings:

in EUR '000 2005

Group sales revenue 729,086 Consolidated profit 20,299

From the date of their first-time consolidation, the new acquisitions PILECO Inc. and Pilemac Inc. generated sales revenues totalling EUR 1,520 thousand and earnings of EUR 17 thousand for financial 2005.

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

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

72 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

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

1 EUR equals 2005 2006 2005 2006

Yearly average values Balance sheet date values Singapore SGD 2.0614 1.9972 1.9688 2.0213 Thailand THB 49.9408 41.0479 48.6150 42.9010 Mexico MXP 13.5150 13.7850 12.6100 14.3200 Chile CLP 693.9700 670.7750 609.3000 704.4000 Argentina ARS 3.6321 3.8894 3.5920 4.0478 Peru PEN 4.0911 4.1238 4.0650 4.2130 Japan JPN 136.9192 146.7517 139.1300 156.6500 United States of America USD 1.2380 1.2631 1.1834 1.3181 South Africa ZAR 7.8845 8.6303 7.4890 9.2150 Great Britain GBP 0.6830 0.6819 0.6870 0.6714 Malaysia MYR 4.6843 4.6177 4.4823 4.6418

Saudi Arabia SAR 4.6435 4.7146 4.4387 4.9434 Consolidated Financial Statements Lebanon USD 1.2380 1.2631 1.1834 1.3181

Egypt EGP 7.1706 7.2491 6.8060 7.5270 2006 Indonesia IDR 12,065.7500 11,525.7500 11,670.0000 11,853.0000 Hungary HUF 248.6283 264.1650 252.6650 251.6750 Romania RON 3.6229 3.5234 3.6800 3.4580 United Arab Emirates AED 4.5473 4.6393 4.3472 4.8412 Ethiopia ETB 10.7750 - 10.3460 - Philippines PHP 68.3092 64.5725 62.8400 64.6100 Pakistan PKR 73.9025 - 70.9200 - New Zealand NZD 1.7588 1.9434 1.7281 1.8740 Taiwan TWD 39.8646 41.0479 38.9500 42.9010 Hong Kong HKD 9.6264 9.8114 9.1778 10.2484 China CNY 10.1344 10.0499 9.5515 10.2915 Switzerland CHF 1.5476 1.5768 1.5555 1.6080 Australia AUD - 1.6679 - 1.6681 Canada CAD - 1.4259 - 1.5294 Russia RUB - 33.9833 - 34.2400

73 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

4. Accounting and valuation methods

Intangible assets Intangible assets are capitalized at cost and amortized according to the straight-line method over the projected useful life of 3 to 10 years. There are no intangible assets with an indefinite useful life. Research and development costs are generally charged as expenditure in the financial year in which they occurred, in accordance with IAS 38. Exceptions to this are certain development costs which are capitalized where it is probable that a future economic benefit will be drawn from the development project and the costs incurred can be measured reliably. In addition, the following criteria in accordance with IAS 38.57 must be met: • Technical feasibility of completion of the intangible asset so that it will be available for use or sale • Intention to complete the intangible asset and to use or sell it • Ability to use or sell the intangible asset • How the intangible asset will generate probable future economic benefits • The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset • The ability to measure reliably the expenditure attributable to the intangible asset during its development

The cost of manufacture includes all costs directly attributable to the development process as well as appropriate portions of development- related overheads. Amortization is undertaken according to the straight-line method as from start of production over the intended term of the developed models. The projected useful life is between 3 and 6 years. Financing costs are not capitalized. Impairment losses on intangible assets are recognized to the higher of the value in use or the fair value less cost to sell. If the preconditions for an impairment no longer exist, reversals of impairment – except for goodwill – are undertaken.

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

Economic life Useful life

Developed land and buildings 3 to 60 years

Technical equipment and machinery 3 to 21 years

Other equipment, factory and office equipment 2 to 21 years

Impairment losses on property, plant and equipment are recognized in accordance with IAS 36 where the value in use or fair value less cost to sell of the asset concerned has fallen below the carrying amount. If the reasons for an impairment recognized in previous years no longer exist, a corresponding reversal of impairment is applied. Financing costs are not capitalized. In respect of use of rented property, plant and equipment, the preconditions for finance lease in accordance with IAS 17 are met if all material risks and opportunities associated with ownership have been transferred to the Group company concerned. In such cases the property, plant and equipment in question is capitalized at the lower of fair value or the present value of the minimum lease payments and subjected to straight-line depreciation according to the economic life of the asset or over the shorter term of the lease. The payment obligations resulting from the future lease instalments are recognized as a discounted liability.

Investment property Land and buildings maintained in order to generate rental income are accounted for at amortized cost, with the useful lives applied for depreciation (straight-line according to the pro rata temporis method) corresponding to those of the property, plant and equipment used by the company itself.

74 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

The fair value was determined without the engagement of an expert based on approved valuation methods (derivation from the current market price of comparable real estate).

Investments accounted for using the equity method and participations In respect of the financial assets, direct investments in unquoted companies are measured at cost, as no price quoted on an active market is available and no applicable fair value could be reliably determined. In the event of projected permanent reduction in value, impairments are recognized. If the reasons for impairment no longer exist, corresponding reversals of impairment are applied. The associated companies consolidated according to the equity method are consolidated taking into account the pro rata results of the company concerned and the dividends paid.

Primary financial instruments Receivables and liabilities are initially recognized at the applicable fair value and subsequently measured at amortized cost. These relate in particular to • trade receivables and trade payables • current and non-current other assets and liabilities • current and non-current financial assets and liabilities. Items are initially recorded at the date on which we became a party to the contract. Financial assets are derecognized when the contractual rights to cash flows expire or the financial asset has been transferred. Financial liabilities are derecognized when they have been extinguished. Items are initially recorded on the performance date.

Derivative financial instruments Derivative financial instruments (interest rate swaps and foreign exchange forward contracts) are entered into solely to hedge against inter- Consolidated Financial Statements est rate and currency risk. No deals are made without an underlying transaction. In the case of hedging against the risk of changes in fair values of unrecognized firm commitments, both the hedging instrument and the 2006 hedged risk portion of the underlying transaction are recognized in the income statement at the applicable fair value (fair-value hedges). The corresponding changes in fair values are stated under "Other operating income" or "Other operating expenses" as appropriate. The derivative financial instruments are stated at their fair values as assets or liabilities. Changes in value of derivatives not forming part of a fair-value hedge are stated in the income statement under financial result. The fair values of the foreign exchange forward contracts are defined on the basis of current reference prices, taking into account forward premiums and discounts. The fair values of the interest rate swaps are determined on the basis of discounted future payment flows, applying the market interest rates applicable to the respective residual terms of the derivatives. Items are initially recorded on the trading date.

Inventories Inventories of work in progress and finished goods, as well as raw materials and supplies, are measured at acquisition cost or cost of manufacture or at the lower net realizable value at the balance sheet date. Where the net realizable value of previously written-down inventories has increased, corresponding value recovery adjustments are made. The cost of manufacture includes all costs directly and indirectly attributable to the manufacturing process. Financing costs are not taken into account.

Construction contracts Construction contracts are accounted for according to the Percentage of Completion method. The applicable percentage of completion is determined according to the costs incurred (Cost to Cost method). Revenue on the contract is recognized as the contractual revenue and sup- plements confirmed in writing by the customer. The contracts are disclosed under "Receivables/Liabilities from construction contracts", as appropriate. Where the cumulative return (contract costs and pro rata result) exceeds the payments on account in individual cases, the construction contracts are recognized as assets under "Receivables from construction contracts". If a negative balance remains after deduction of the payments on account, it is recognized as a liability under "Liabilities from construction contracts". Expected losses on a contract are

75 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

accounted for in full at the time they are identified. Construction contracts undertaken in joint ventures are valued according to the PoC method. Receivables from joint ventures also include the pro rata result from the contract. Expected losses are covered by write-downs or provisions as appropriate, and are taken into account in the contract result.

Receivables and other assets In respect of receivables and other assets valued at amortized cost, we have taken account of possible risk by means of value adjustments.

Cash and cash equivalents Cash and cash equivalents comprise cash and sight deposits.

Deferred taxes Deferred taxes are taken into account in respect of variations between the valuations of assets and debts in accordance with IFRS and their corresponding tax bases in the amount of the projected future tax charge or relief. In addition, deferred tax assets are recognized for future advantages arising from tax losses carried forward, provided it is probable that they will be realized. Deferred tax assets and liabilities are offset provided there is a possibility of offsetting under law. In Germany, deferred taxes are stated on the basis of corporation tax, the "solidarity surcharge" and trade tax, at a rate of 37.4 %. Outside Germany, tax rates of between 15 % and 37 % are applied.

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

Other provisions The other provisions are taken into account insofar as a present obligation arises from a past event, a relevant claim is more likely than unlikely, and the amount of the claim can be reliably estimated. The provisions are stated at their performance amount, and are not netted against profit contributions. Provisions are created only for legal or constructive obligations to third parties.

Liabilities Liabilities are recognized at amortized cost.

Income and expenses Sales revenues and other incomes are realized on performance of the supply or service or on transfer of risk to the customer, as appropriate. In respect of longer-term customer-specific construction contracts the sales are recognized according to the progress of work based on the Percentage of Completion method. Operating expenses are recognized as affecting net income when the supply or service is claimed or at the time they are caused, as appropriate. Interest income and expenses are recognized when incurred.

76 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

Notes to the income statement

5. Sales revenue The sales revenues generated include revenues from application of the Percentage of Completion method in the amount of EUR 467,910 thousand (previous year: 430,847 thousand). Furthermore, sales revenues were also generated from settled company-operated construction sites and from the sale and renting of equipment and accessories. For the sake of improved presentation, the sales revenues for the first time include a net value adjustment of EUR -4,389 thousand (previous year: -1,779 thousand). The previous year's "Other income" and "Other operating expenses" items were adjusted accordingly. With regard to the presentation and breakdown of sales revenue by division and geographical region, please refer to the notes on segment reporting.

6. Other income in EUR '000 2005 2006

Income from other capitalized goods/services for own account 28,505 36,566

Income from disposal of property, plant and equipment 3,221 2,420

Realized foreign currency gains 3,881 1,995

Income from insurance refunds 276 806

Income from derecognition of liabilities 1,647 2,609

Income from investments 8 157 Consolidated Financial Statements

Income from lucky buys 23 0

Other income from rentals 655 2,078 2006

Income from changes in fair values of 232 1,245 foreign exchange forward contracts

Other operating income 5,443 12,331

Total 43,891 60,207

The other operating income mainly comprises income from benefits in money's worth, subsidies and other reimbursements of expenditure.

7. Cost of materials in EUR '000 2005 2006

Expenses for raw materials and supplies and purchased goods 286,692 332,705

Expenses for purchased services 159,728 184,195

Total 446,420 516,900

8. Staff costs The expenses for retirement benefits include the expenditure on benefits excluding the interest portion of the allocations to pension provisions for defined benefit plans, which is stated under "Interest and similar expenses".

77 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

in EUR '000 2005 2006

Wages and salaries 127,368 144,430 Social security contributions 24,930 25,070 Expenses for retirement benefits 2,992 5,569 Total 155,290 175,069

The employer's pension contributions in the financial year totalled EUR 10,656 thousand (previous year: 6,527 thousand). The wages and salaries include severance payments in the amount of EUR 587 thousand (previous year: 299 thousand).

9. Depreciation and amortization The amortization of intangible assets in the financial year totalled EUR 3,174 thousand (previous year: 2,638 thousand) and depreciation of property, plant and equipment amounted to EUR 32,867 thousand (previous year: 31,057 thousand). The other depreciation relates to depreciation of current assets.

10. Other operating expenses in EUR '000 2005 2006

Losses from disposal of property, plant and equipment 1,707 672 Operating expenses 18,075 27,753 Administrative expenses 14,457 17,925 Distribution costs 17,834 18,227 Other personnel expenses 5,896 8,982 Realized foreign currency losses 2,115 3,658 Additional other operating expenses 13,342 21,823 Total 73,426 99,040

The additional other operating expenses mainly comprise allocations to provisions affecting net income as well as other tax expenses.

11. Financial result in EUR '000 2005 2006

Other interest and similar income 1,327 2,785 Interest and similar expenses 18,899 19,394 Interest portions of allocations to provisions for pensions and similar commitments 1,723 1,696 Income from the market valuation of interest rate swaps - Income from changes in fair values of interest rate swaps 1,000 2,075 - Expenses from changes in fair values of interest rate swaps 89 0 Total 18,384 16,230

78 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

The interest from finance leases included under "Interest and similar expenses" in the financial year totalled EUR 2,024 thousand (previous year: 2,044 thousand).

12. Income tax expense The income tax expense is broken down as follows:

in EUR '000 2005 2006

Actual taxes 10,321 23,664

Deferred taxes 423 495

Total 10,744 24,159

The theoretical tax rate is 37.4 %.

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

in EUR '000 2005 2006 Consolidated Financial Statements Profit before income tax 30,249 59,365

Expected tax expenditure 37.4 % (previous year: 37.4 %) 11,313 22,203 2006

Differences in tax rate -566 -874

Taxation effects of non-deductible expenses and tax-free income -137 1,499

Non-tax-deductible elimination of a negative excess in a business combination -9 0

At-equity valuation of associated companies -432 -976

Out-of-period tax payments pursuant to tax audit 433 1,373

Value adjustments in respect of deferred tax assets on losses carried forward 0 854

Other 142 80

Income tax expense 10,744 24,159

79 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

13. Earnings per share The earnings per share are calculated by dividing the profit attributable to the shareholders of BAUER Aktiengesellschaft by the weighted average number of ordinary shares outstanding.

The earnings per share prior to a share split at a 1:6 ratio amount to the following values:

2005 2006

Profit attributable to the shareholders of BAUER Aktiengesellschaft, in EUR '000 18,927 34,124

Weighted average number of shares issued 2,464,000 2,464,000 less own shares 74,860 74,860

Weighted average number of ordinary shares outstanding in the period 2,389,140 2,389,140

Basic earnings per share in EUR 7.92 14.28

Diluted earnings per share in EUR 7.92 14.28

The earnings per share after a share split at a 1:6 ratio amount to the following values:

2005 2006

Profit attributable to the shareholders of BAUER Aktiengesellschaft, in EUR '000 18,927 34,124

Number of shares from 01.01. - 30.06. after share split 14,784,000 14,784,000 less number of treasury shares from 01.01. - 30.06. 449,160 449,160

Number of shares from 01.01. - 30.06. 14,334,840 14,334,840

Number of shares from 01.07. - 31.12. 14,334,840 17,131,000

Weighted average number of shares in circulation in financial year (basic) 14,334,840 15,732,920

Weighted average number of shares in circulation in financial year (diluted) 14,334,840 15,732,920

Basic earnings per share in EUR 1.32 2.17

Diluted earnings per share in EUR 1.32 2.17

80 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

Notes to the balance sheet

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

NON-CURRENT ASSETS

14. Fixed assets

Intangible assets

in EUR '000

Cost of purchase/ Licences, software Internally generated intangible assets Payments on cost of manufacturing and similar rights account for Total Capitalized Capitalized and values intangible assets software costs development costs

01.01.2005 5,753 0 15,608 324 21,685

Change in scope 1,572 0 0 0 1,572 of consolidation

Additions 831 215 2,689 748 4,483 Consolidated Financial Statements Disposals 3,857 0 0 0 3,857

Transfers 0 0 0 -21 -21 2006 Currency adjustment 33 0 0 0 33

31.12.2005 4,332 215 18,297 1,051 23,895

in EUR '000

Cost of purchase/ Licences, software Internally generated intangible assets Payments on and similar rights account for Total Capitalized Capitalized cost of manufacturing and values intangible assets software costs development costs

01.01.2006 4,332 215 18,297 1,051 23,895

Change in scope 0 0 0 0 0 of consolidation

Additions 1,104 285 2,722 65 4,176

Disposals 286 1 0 0 287

Transfers 1,001 0 0 -1,015 -14

Currency adjustment -170 0 0 0 -170

31.12.2006 5,981 499 21,019 101 27,600

81 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

in EUR '000

Accumulated Licences, software Internally generated intangible assets Payments on and similar rights account for amortization Capitalized Capitalized Total and values intangible assets software costs development costs

01.01.2005 4,273 0 10,231 0 14,504 Change in scope 0 0 0 0 0 of consolidation Additions 688 31 1,919 0 2,638

Disposals 3,815 0 0 0 3,815

Transfers 0 0 0 0 0

Currency adjustment 42 0 0 0 42

31.12.2005 1,188 31 12,150 0 13,369

Carrying amount 31.12.2005 3,144 184 6,147 1,051 10,526

in EUR '000

01.01.2006 1,188 31 12,150 0 13,369 Change in scope 0 0 0 0 0 of consolidation Additions 1,110 71 1,993 0 3,174

Disposals 286 0 0 0 286

Transfers 0 0 0 0 0

Currency adjustment -3 0 0 0 -3

31.12.2006 2,009 102 14,143 0 16,254

Carrying amount 31.12.2006 3,972 397 6,876 101 11,346

82 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

Of the total research and development costs and patent costs incurred in 2006, EUR 2,954 thousand (previous year: 2,942 thousand) met the IFRS capitalization criteria. The following amounts were recognized in net income:

in EUR '000 2005 2006

Research costs and uncapitalized development costs 3,472 3,934

Amortization of development costs and patents 2,016 2,110

Research and development costs recognized in net income 5,488 6,044

Property, plant and equipment and investment property

in EUR '000

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

01.01.2005 103,749 633 185,389 35,671 2,386 327,828

Change in scope 1,363 0 -440 -72 0 851 of consolidation

Additions 9,543 0 27,394 7,574 6,620 51,131 Consolidated Financial Statements

Disposals 3,423 0 24,861 6,315 158 34,757 2006 Transfers -1,653 0 3,427 355 -2,108 21

Currency adjustment 653 0 13,689 1,061 37 15,440

31.12.2005 110,232 633 204,598 38,274 6,777 360,514

in EUR '000

01.01.2006 110,232 633 204,598 38,274 6,777 360,514

Change in scope 0 0 44 268 0 312 of consolidation

Additions 8,569 0 33,189 7,928 11,383 61,069

Disposals 1,208 0 27,770 7,848 1,407 38,233

Transfers 5,321 1,593 1,767 903 -9,570 14

Currency adjustment -312 0 -4,636 -431 -72 -5,451

31.12.2006 122,602 2,226 207,192 39,094 7,111 378,225

83 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

in EUR '000

Accumulated Technical Other equipment, Payments on Land and Investment depreciation equipment and factory and office account and assets Total buildings property machinery equipment in course of constr.

01.01.2005 36,136 93 107,728 25,147 0 169,104

Change in scope -9 0 -296 -51 0 -356 of consolidation

Additions 3,224 24 23,113 4,696 0 31,057

Disposals 187 0 15,139 5,281 0 20,607

Transfers 44 0 -162 118 0 0

Currency adjustment 288 0 10,771 921 0 11,980

31.12.2005 39,496 117 126,015 25,550 0 191,178

Carrying amount 70,736 516 78,583 12,724 6,777 169,336 31.12.2005 of which finance lease 7,925 0 21,041 5,809 0 34,775 Carrying amount 31.12.2005

in EUR '000

01.01.2006 39,496 117 126,015 25,550 0 191,178

Change in scope 0 0 0 29 0 29 of consolidation

Additions 3,568 58 23,610 5,631 0 32,867

Disposals 536 0 19,451 6,732 0 26,719

Transfers -589 589 0 0 0 0

Currency adjustment -55 0 -3,590 -340 0 -3,985

31.12.2006 41,884 764 126,584 24,138 0 193,370

Carrying amount 80,718 1,462 80,608 14,956 7,111 184,855 31.12.2006 of which finance lease 7,704 0 18,451 5,784 0 31,939 Carrying amount 31.12.2006

84 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

In respect of buildings and equipment leased by way of finance lease agreements purchase options exist, which will be exercised. The interest rates applied to the leases vary, according to the market and date of signing, between 4.25 and 8 % (previous year: 4 and 8 %).The future lease payments due at their present values are shown in the following table:

in EUR '000 2005 2006

Remaining term Remaining term

under 1 year 1 - 5 years over 5 years Total under 1 year 1 - 5 years over 5 years Total Minimum lease payments 11,099 24,450 9,863 45,412 10,119 21,160 9,434 40,713

Interest portions 1,880 3,818 3,400 9,098 1,639 3,269 2,693 7,601

Present value 9,219 20,632 6,463 36,314 8,480 17,891 6,741 33,112

The investment properties have a fair value of EUR 1,825 thousand (previous year: 807 thousand) and in 2006 were almost all rented out. In the period under review rental income in the amount of EUR 73 thousand (previous year: 3 thousand) was generated, to which direct operating expenses totalling EUR 77 thousand (previous year: 22 thousand) are attributable. Property, plant and equipment with a carrying amount of EUR 51,772 thousand (previous year: 64,709 thousand) is subject to charges in the form of land charges and assignment. In addition, the usual commercial restrictions on right of disposal exist in respect of leased assets, attributable to the Group in accordance with IAS 17 (finance lease agreements), totalling EUR 31,939 thousand (previous year: 34,775 thousand). Consolidated Financial Statements

Investments accounted for using the equity method and participations 2006 in EUR '000

Cost of purchase/ Investments accounted for using Participations Total cost of manufacturing the equity method 01.01.2005 3,576 1,155 4,731

Change in scope of consolidation 0 0 0

Additions 625 0 625

Disposals 0 70 70

Transfers 0 0 0

Currency adjustment 0 0 0

31.12.2005 4,201 1,085 5,286

85 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

in EUR '000 Cost of purchase/ Investments accounted for using Participations Total cost of manufacturing the equity method 01.01.2006 4,201 1,085 5,286 Change in scope of consolidation 1,560 -35 1,525 Additions 252 3,304 3,556 Disposals 0 0 0 Transfers 0 0 0 Currency adjustment 0 0 0 31.12.2006 6,013 4,354 10,367 in EUR '000 Accumulated Investments accounted for using Participations Total depreciation the equity method

01.01.2005 0 815 815 Change in scope of consolidation 0 0 0 Additions 0 0 0 Disposals 0 0 0 Transfers 0 0 0 Currency adjustment 0 0 0 31.12.2005 0 815 815 Carrying amount 31.12.2005 4,201 270 4,471 in EUR '000 Accumulated Investments accounted for using Participations Total depreciation the equity method

01.01.2006 0 815 815 Change in scope of consolidation 0 0 0 Additions 0 0 0 Disposals 0 0 0 Transfers 0 0 0 Currency adjustment 0 0 0 31.12.2006 0 815 815 Carrying amount 31.12.2006 6,013 3,539 9,552

86 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

The summarized financial information relating to the associated companies in the year under review is as follows:

in EUR '000 2005 2006

Assets (31.12.) 56,660 85,642

Shareholders' equity (31.12.) 13,119 18,412

Debt (31.12.) 43,541 67,230

Sales revenue 58,249 84,072

Net profit for year 4,197 8,778

15. Deferred taxes The deferred tax assets and liabilities are distributed across the following balance sheet items:

in EUR '000 31.12.2005 31.12.2006 31.12.2005 31.12.2006

Deferred tax assets Deferred tax liabilities

Intangible assets 0 0 3,587 3,436

Property, plant and equipment 709 826 15,405 14,259 Consolidated Financial Statements

Inventories 0 27 1,165 1,318 2006 Receivables and other assets 67 411 987 255

Defined benefit plans 1,751 1,529 0 0

Liabilities 14,772 11,623 171 209

Tax losses carried forward 9,322 10,493 0 0

Consolidation measures 105 164 947 1,523

Offsetting -12,191 -9,841 -12,191 -9,841

Net amount 14,535 15,232 10,071 11,159

Deferred tax receivables in respect of tax losses carried forward are recognized at the amount at which it is likely the associated tax benefits will be realized based on projected future taxable profits. Deferred tax receivables in an amount of EUR 16,708 thousand (previous year: EUR 12,865 thousand) relating to losses totalling EUR 44,674 thousand (previous year: EUR 34,399 thousand) which can be carried forward and set off against future taxable profits were not recognized. Losses carried forward totalling EUR 44,674 thousand (previous year: 34,399) are usable over an unlimited period of time. The total tax losses carried forward amount to EUR 100,749 thousand (previous year: EUR 76,275 thousand).

In connection with interests in subsidiaries, temporary differences totalling EUR 2,467 thousand (previous year: 1,954 thousand) exist for which no deferred tax liabilities were recognized.

87 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

16. Other non-current assets The other non-current assets comprise the following items:

in EUR '000 31.12.2005 31.12.2006

Claims from backup insurance 3,835 4,006

Sundry other non-current assets 6,613 6,230

Total 10,448 10,236

The sundry other non-current assets were recognized at an effective interest rate of around 6 % (previous year: around 5 %) and mainly comprise non-current portions of trade receivables. The carrying amounts of the other non-current assets correspond mainly to their fair values.

17. Other non-current financial assets The other non-current financial assets comprise the following: in EUR '000 31.12.2005 31.12.2006

Remaining term Remaining term

1 - 5 years over 5 years 1 - 5 years over 5 years

Receivables from currency hedging transactions 229 0 0 0

Receivables from interest rate swaps 0 0 100 412

The derivatives are presented in section 32.

CURRENT ASSETS

18. Inventories The inventories comprise the following items: in EUR '000 31.12.2005 31.12.2006

Raw materials and supplies 45,992 58,477 King piles and sheet piles 2,670 3,735 Work in progress and finished goods 82,999 92,025 Payments on account 408 2,119 Total 132,069 156,356

Of the inventories, EUR 23,096 thousand (previous year: 23,642 thousand) are stated at net realizable value. Write-downs of inventories in the financial year totalled EUR 14,422 thousand (previous year: 6,297 thousand). They mainly resulted from renting-out of inventory assets. In the financial year, apart from the usual retentions of title, inventories totalling EUR 3,495 thousand (previous year: 2,876 thousand) were pledged as security for loans.

88 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

19. Receivables and other assets

Construction contracts The construction contracts measured according to the Percentage of Completion method developed as follows:

in EUR '000 31.12.2005 31.12.2006

Contract costs incurred (plus profits, less losses) for projects not yet completed 192,908 187,729

less down-payments 172,580 164,960

Balance 20,328 22,769

of which: Receivables from construction contracts 30,990 30,539

of which: Liabilities from construction contracts 10,662 7,770

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

in EUR '000 Consolidated Financial Statements 31.12.2005 31.12.2006

Receivables from construction contracts 30,990 30,539 2006 Trade receivables 157,067 163,648

Receivables from joint ventures 734 5,310

Receivables from enterprises in which the company has participating interests 3,472 6,431

Other current assets 17,144 25,615

Other current financial assets 2,141 5,563

Total 211,548 237,106

The other current assets mainly comprise miscellaneous tax refund claims and claims against employees and against welfare benefit funds as well as accrued interest and insurance premiums and other prepayments and deferred charges. The previous year's statement of other current assets was increased by EUR 4,776 thousand from EUR 12,368 thousand to EUR 17,144 thousand because the prepayments and deferred charges were reclassified as other current assets.

The carrying amounts of the receivables and other assets correspond to their fair values. A total of EUR 970 thousand (previous year: 3,224 thousand) in monetary assets were pledged as securities against loans. The current portion of the receivables from currency hedging transactions included in the current financial assets in the financial year totalled EUR 17 thousand (previous year: 2,141 thousand).

89 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

20. Cash and cash equivalents The cash and cash equivalents totalling EUR 17,143 thousand (previous year: 14,521 thousand) include credit balances at banks and petty cash stocks. The carrying amounts mainly correspond to the fair values.

21. Shareholders' equity The subscribed capital of the Group at the balance sheet date totalled EUR 73,001 thousand (previous year: 63,000 thousand), and is divided into 17,131,000 no-nominal-value bearer shares with full dividend rights. Of the shares issued, no shares have been held by the Group since the stock market listing. The treasury stock included in the shareholders' equity in the previous year was sold in the course of the stock market listing.

The shareholder structure of BAUER Aktiengesellschaft is as follows:

31.12.2005 31.12.2006

% EUR '000 % EUR '000

Deutsche Beteiligungs AG 41.15 25,926 0 0

Prof. Thomas Bauer 18.03 11,357 15.56 11,357

Dr. Johannes Bauer 9.77 6,153 8.43 6,153

Dr. Sebastian Bauer 8.65 5,450 7.46 5,450

Dr. Karlheinz Bauer 7.53 4,747 6.50 4,747

Elisabeth Teschemacher 7.00 4,409 6.04 4,409

Other family members 4.83 3,044 4.17 3,044

BAUER Spezialtiefbau GmbH 1.63 1,026 0 0

BAUER Maschinen GmbH 1.41 888 0 0

Free float 0 0 51.84 37,841

Total 100.00 63,000 100.00 73,001

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

in EUR '000 31.12.2005 31.12.2006

I. Capital reserve 10,470 38,404 II. Other revenue reserves and net earnings 68,505 102,808 available for distribution II. Minority interests 6,486 8,368

Total 85,461 149,580

90 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

NON-CURRENT LIABILITIES

22. Non-current liabilities The non-current portions of the liabilities comprise the following:

in EUR '000 31.12.2005 31.12.2006

Remaining term Remaining term

1 - 5 years over 5 years 1 - 5 years over 5 years Liabilities to banks 89,335 9,197 86,567 13,426 Liabilities from finance lease agreements 20,632 6,463 17,891 6,741 Non-current bills of exchange 1,308 0 2,390 0 Other non-current liabilities 1,790 421 1,801 721 Other non-current financial liabilities 1,482 14,271 1,305 6,464 Total 114,547 30,352 109,954 27,352

in EUR '000 Fair value Interest rate margin

31.12.2005 31.12.2006 31.12.2005 31.12.2006 Consolidated Financial Statements Liabilities to banks 100,720 100,106 4.50 - 5.95 % 3.75 - 6.25 % Liabilities from finance lease agreements 27,095 24,632 4.00 - 8.00 % 4.25 - 8.00 % 2006 Non-current bills of exchange 1,385 2,567 2.76 - 9.00 % 5.10 - 9.70 % Other non-current financial liabilities 15,921 7,843 4.33 - 10.50 % 3.41 - 9.75 % Total 145,121 135,148 - -

The other non-current liabilities include non-current portions of liabilities from obligations in respect of part-time retirement and service anniversary payments as well as trade payables. The other non-current financial liabilities mainly comprise the fair values of the derivatives as well as other liabilities to leasing companies and convertible bonds (see the notes to the financial instruments in section 26).

91 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

23. Defined benefit plans For employees of Group companies in Germany, in particular, retirement plans are provided on the basis of direct or indirect performance- related defined benefit plans. These are regularly based on the time employees have worked for the company and on their remuneration, or on fixed pension commitments not linked to pay. The defined benefit liabilities are measured on an actuarial basis according to the Projected Unit Credit method, taking account of future developments. The calculations are based on the following actuarial assumptions:

31.12.2005 31.12.2006

Interest rate 4.0 % 4.5 % Rate of salary increase 1.0 % 2.5 % Rate of pension increase 1.0 % 2.0 %

Calculation of provisions for pensions and similar commitments:

in EUR '000 31.12.2005 31.12.2006

Present value of pension claims financed by a fund 0 1,050

less applicable fair value of plan assets -134 -145

Present value of pension claims not financed by a fund 43,236 50,268

Adjustment amount based on (non-allocated) actuarial gains/losses -8,562 -14,695

Provisions for pensions and similar commitments 34,540 36,478

The performance-related commitment has developed as follows in the financial year:

in EUR '000 31.12.2005 31.12.2006

Start of year 35,275 43,236

Current service costs 893 1,156

Interest expense 1,724 1,696

Actuarial gains/(losses) 6,583 6,491

Payments made -1,239 -1,261

End of year 43,236 51,318

92 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

Development of plan assets:

in EUR '000 31.12.2005 31.12.2006

Applicable fair value of plan assets 0 134 at start of financial year

Actual income from plan assets 0 3

Contributions 134 8

Applicable fair value of plan assets 134 145 at end of financial year

The actual income from plan assets totals EUR 3 thousand (previous year: 0). The actual return achieved is 2.2 % (previous year: 0.0 %).

The projected unit credit indicates the pension claims of the employees according to the conditions applying at the balance sheet date. By contrast, the provision is created on the basis of actuarial assumptions which ignore reference date-related fluctuations within the limits stipulated by IAS 19 (+/- 10 percent of the projected unit credit). Of the provisions for pensions and similar commitments, EUR 1,275 thousand (previous year: 1,226 thousand) are due within one year.

The amounts recorded in the result are calculated as follows: Consolidated Financial Statements in EUR '000 2005 2006 2006 Current service costs 923 1,157

Amortization of actuarial (gains)/losses 0 361

Interest costs 1,724 1,696

Projected income from plan assets 0 -6

Net periodic pension costs 2,647 3,208

The defined benefit liabilities developed as follows:

in EUR '000 2005 2006

As at 01.01. 33,267 34,540

Net periodic pension costs 2,647 3,208

Disbursements 1,240 1,262

Contributions to plan assets 134 8

As at 31.12. 34,540 36,478

93 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

The following overview presents the development as at December 31 of the present value of the performance-related commitment, the applicable fair value of the plan assets and the development in plan asset performance since the changeover to IFRS: in EUR '000 2002 2003 2004 2005 2006

Present value of performance-related 0 32,686 35,245 43,236 51,318 commitment Fair value of plan assets 0 0 0 -134 -145

Loss/(profit) 0 32,686 35,245 43,102 51,173

Empirical value-based adjustments: in EUR '000 2002 2003 2004 2005 2006

Empirical value-based adjustments 0 0 -105 769 1,261 to plan liabilities Effects of changes in 0 0 1,271 5,814 5,231 actuarial assumptions Empirical value-based adjustments 0 0 0 0 3 to plan assets

CURRENT LIABILITIES

24. Current liabilities in EUR '000 31.12.2005 31.12.2006

Liabilities to banks 61,526 58,153 Liabilities in respect of bills of exchange 5,071 1,622 Advances received for orders 1,048 2,797 Liabilities from construction contracts 10,662 7,770 Trade payables 63,799 65,734 Liabilities to enterprises in which the company has participating interests 104 72 Liabilities from finance lease agreements 9,219 8,480 Other current liabilities 57,724 61,857 Other current financial liabilities 6,306 3,783 Total 215,459 210,268

94 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

The other current liabilities mainly comprise obligations in respect of outstanding invoices, flexitime and holiday credits, employer's liability insurance associations, the compensation levy for the shortfall in handicapped employees, performance bonuses as well as other tax liabilities and liabilities in respect of social security. The other current financial liabilities mainly comprise obligations to leasing and finance companies. The fair values virtually match the carrying amounts. The interest rate margin on current liabilities to banks is 4.11 % - 4.70 % (previous year: 3.97 % - 4.41 %).

25. Other provisions The other provisions have developed as follows in the financial year:

in EUR '000 01.01.06 Currency 31.12.06 Consumption Reversal Allocation adjustment Other provisions 9.002 -169 2,512 2,275 8,005 12,051

The other provisions comprise the following:

in EUR '000 31.12.2005 31.12.2006

Risk from contract processing and warranties 8,723 11,366

Litigation 108 181

Sundry other provisions 171 504 Consolidated Financial Statements

Total 9,002 12,051 2006

The provisions for risk from contract processing and warranties includes all risks arising from carrying out specialist foundation engineering work and from the sale of machinery, equipment and tools for specialist foundation engineering, with the associated services. These primarily relate to warranty obligations and to other uncertain commitments. The risk from contract processing and warranties is determined specific to project/construction site. The allocated provisions are likely to be used up in the course of 2007.

26. Notes on financial instruments The primary financial instruments on the assets side comprise investments as well as receivables and liquid funds. The amount of the financial assets represents the maximum risk of default. Discernible risks of default are recognized by means of value adjustments. On October 2, 2001 BAUER EGYPT S.A.E. issued an 11 % convertible bond with a face value of EGP 10,000,000. The term of the convertible bond was originally 3 years, and was extended for a further 3 years. On expiry of the convertible bond, the holder has the option to exchange it for 200,000 shares at EGP 50 each. The applicable fair value of the debt component and of the equity conversion component was set as per the issue date of the convertible bond. The applicable fair value of the debt component recognized in the non-current financial assets as at December 31, 2006 amounts to EUR 1,236 thousand (previous year: 1,366 thousand).

95 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

Derivative financial instruments are entered into to manage risk arising from interest rate and exchange rate fluctuations, and are solely used for hedging purposes. No trading positions are entered into without an underlying transaction. Hedge accounting (fair-value hedges) is applied to hedge unrecognized firm commitments. At present, mainly foreign exchange forward contracts and interest rate swaps are entered into. The following derivative financial instruments existed at the balance sheet date: in EUR '000 Remaining term Nominal volume Fair value under 1 year 1 - 5 years over 5 years

31.12.05 31.12.06 31.12.05 31.12.06 31.12.05 31.12.06 31.12.05 31.12.06 31.12.05 31.12.06

Interest rate swaps 0 10,226 30,452 20,226 15,000 30,000 45,452 60,452 -2,188 -113

Foreign exchange forward 15,253 6,592 1,388 0 0 0 16,641 6,592 -2,251 -7 contracts (of which fair- (15,253) (6,592) (1,388) (0) (0) (0) (16,641) (6,592) (-2,251) (-7) value hedges)

The primary financial instruments in the consolidated financial statements of the BAUER Group are subject to the following interest commitments: in EUR '000 Variable interest rate Fixed interest rate

31.12.2005 31.12.2006 31.12.2005 31.12.2006

Cash and cash equivalents 14,521 17,143 0 0

Liabilities to banks 6,194 45,186 153,864 112,960

Liabilities from finance lease agreements 0 4,913 36,314 28,199

Other financial liabilities 0 166 17,620 11,386

The variable interest rate relates to current account balances of which the interest rates are continually being adjusted as well as to non- German portions of liabilities from finance lease agreements and other financial liabilities. The fixed interest rate relates to bank loans, German liabilities from finance lease agreements, finance agreements with leasing companies, and convertible bonds. The interest commitments exist over the respective terms of the agreements, being mainly between 1 and 10 years.

27. Contingent liabilities Contingent liabilities are liabilities not yet recognized in the financial statements, recognized in the amount of the maximum possible exposure on the balance sheet date. in EUR '000 31.12.2005 31.12.2006

Liabilities from guarantees 13,056 13,146

The contingent liabilities were mainly in relation to the securing of bank loans, to contract performance, to warranty obligations and to advance payments. As per the balance sheet date we stood guaranty primarily for subsidiaries and joint ventures. In addition, we are subject to joint and several liability in respect of all joint ventures in which we participate.

96 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

28. Other financial obligations

in EUR '000 Remaining term under 1 year 1 - 5 years over 5 years

31.12.2005 31.12.2006 31.12.2005 31.12.2006 31.12.2005 31.12.2006

Minimum lease payments from operating leases 6,302 7,231 4,322 4,517 64 0

Other financial obligations 776 835 1,651 1,526 13 267

The operating leases relate mainly to mutual agreements about factory and office equipment, as well as to technical equipment and machinery which were added in the financial year and are classified as operating leases. The BAUER Group is committed to rental agreements of unlimited term totalling monthly EUR 108 thousand (previous year: 54 thousand).

29. Events after the balance sheet date No events subject to mandatory reporting in accordance with IAS 10 occurred after December 31, 2006.

30. Segment reporting The internal organizational and management structure and the internal system of reporting to the Management Board and Supervisory Board dictate the primary format of segment reporting employed by the BAUER Group. Accordingly, the BAUER Group comprises the three business Consolidated Financial Statements units: Construction, Equipment and Other. The secondary reporting format is geographically based. Business transactions between the companies of the various segments of the BAUER Group are subject to the same prices agreed with third parties. 2006 Notes on the segment data The core business of the Construction segment is specialist foundation engineering. Complete excavation pits and foundation works, often in difficult subgrade conditions, are carried out for major infrastructure projects. In order to offer customers a full range of services, the companies of the BAUER Group additionally offer other construction services, often involving a major specialist foundation engineering element. Examples of this include bridges, environmental engineering and remediation projects. In order to portray development trends, the Construction segment sales are additionally broken down into the subdivisions of "Specialist Foundation Engineering, Germany", "Specialist Foundation Engineering, International" and "Specialist Construction" in the management report. The construction segment is founded on the close interlinking of all construction activities, including those handled by the Projects department. In the Equipment segment, machinery for all specialist foundation engineering processes is developed and manufactured for worldwide distribution. The equipment can be employed to produce large-diameter and small-diameter bores for piles, diaphragm walls, anchors, injections and wells. Equipment for ramming and soil improvement is also manufactured. The range is supplemented by a wide selection of add-on units and ancillary equipment, covering all the processes involved in specialist foundation engineering. The Other segment comprises the central services for the Group's business units (accounting, human resources, IT etc.), specifically those of BAUER AG.

97 Segment Reporting of the BAUER Group

PRIMARY SEGMENT REPORTING in EUR '000 Construction Equipment 2005 2006 2005 2006

Total revenues (Group) 521,250 575,540 335,680 463,370

INCOME External sales 436,021 466,633 280,718 368,386 Inter-segment sales 14,006 19,694 33,466 39,729

Changes in inventories 2,048 2,773 5,026 15,869

Other income 21,579 32,955 12,485 33,647

Consolidated revenues 1 473,654 522,055 331,695 457,631

RESULT Segment result (operating result) 17,080 13,105 30,886 60,699

Interest expense

Interest income

Share in results of associated companies 1,154 1,082 0 1,528

Income tax expense

Depreciation of financial assets

Profit

OTHER INFORMATION Segment assets 304,040 319,146 240,598 296,430 Shares in associated companies accounted for 4,201 6,013 0 0 using the equity method Unallocated corporate assets

Segment assets, consolidated 2

Segment debt 109,966 105,768 67,824 82,588 Unallocated debt

Segment debt, consolidated 2

Capital investments by segment 2 30,084 39,505 24,334 25,426

Segment depreciation/amortization 24,777 26,258 21,309 22,513

Non-cash transactions by segment 2,883 9,896 4,247 12,415

1 The consolidated revenues reflect the performance of all the companies included in the scope of consolidation. The total Group revenues include portions of revenues from associated companies as well as revenues of non-consolidated subsidiaries and joint ventures. 2 Reference date: 31.12. 98 Other Eliminations/consolidations Consolidated 2005 2006 2005 2006 2005 2006

18,700 24,980 -51,300 -84,040 824,330 979,850

754 332 717,493 835,351

15,184 17,024 -62,656 -76,447 0 0

0 0 1,510 0 8,584 18,642

516 2,346 9,311 -8,741 43,891 60,207

16,454 19,702 -51,835 -85,188 769,968 914,200

1,203 1,165 -1,690 -1,984 47,479 72,985

-20,711 -21,090

2,327 4,860

0 0 0 0 1,154 2,610

-10,744 -24,159 Consolidated Financial Statements

0 0 2006 19,505 35,206

4,309 5,517 548,947 621,093

0 0 4,201 6,013

15,662 16,611

568,810 643,717

6,472 4,937 184,262 193,293 236,087 227,843

420,349 421,136

1,821 3,870 56,239 68,801

1,267 1,435 47,353 50,206

0 162 7,130 22,473

99 Segment Reporting of the BAUER Group

SECONDARY SEGMENT REPORTING in EUR '000 Germany Europe other Middle East Far

2005 2006 2005 2006 2005 2006 2005

Total revenues (Group) 270,350 282,210 218,150 250,860 109,820 135,025 85,580

INCOME External sales by region 201,109 226,653 209,368 221,008 115,894 128,760 74,451

Inter-segment sales 29,859 41,296 3,504 6,478 4,723 8,381 9,584

Changes in inventories 2,814 14,218 202 1,170 0 0 3,939

Other income 19,543 47,830 3,172 2,129 956 510 7,935

Consolidated revenues 1 253,325 329,997 216,246 230,785 121,573 137,651 95,909

SEGMENT ASSETS 2 by location of asset 372,045 388,834 30,115 43,158 24,691 27,970 66,586

CAPITAL INVESTMENTS 2 by location of asset 35,751 42,695 7,397 5,133 6,126 6,726 5,255

100 East America Other Eliminations/consolidations Consolidated

2006 2005 2006 2005 2006 2005 2006 2005 2006

101,930 105,170 156,095 35,260 53,730 - - 824,330 979,850

103,265 81,091 117,674 35,580 37,991 717,493 835,351

16,740 3,360 10,062 302 647 -51,332 -83,604 0 0

3,254 0 0 119 0 1,510 0 8,584 18,642

6,180 2,860 2,216 114 183 9,311 1,159 43,891 60,207

129,439 87,311 129,952 36,115 38,821 -40,511 -82,445 769,968 914,200

80,306 37,475 63,395 18,035 17,430 548,947 621,093 Consolidated Financial Statements 2006

7,064 1,343 6,239 367 944 56,239 68,801

101 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

Other disclosures

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

32. Financial instruments In its business operations and financing activities the BAUER Group is subject in particular to fluctuations in exchange rates and interest rates. It is the company's policy to exclude, or at least limit, these risks by entering into hedge transactions. All hedging measures are controlled and executed centrally by BAUER Aktiengesellschaft. Application of the segregation-of-duties approach ensures that there is an adequate split between the trading and execution functions. All derivatives transactions are entered into only with banks of the highest credit rating.

1. Foreign exchange rate risk To hedge against foreign exchange rate risk, forward contracts are entered into. These transactions hedge the exchange rates of payment flows in foreign currencies arising from business operations (in particular sales revenues) and also establish currency congruency in financing activities. In 2006, hedging was undertaken mainly regarding the US dollar, the Canadian dollar and the UAE dirham.

2. Interest rate risk The existing interest rate swaps serve to safeguard our financing and interest rate hedging strategy. Agreements exist in respect of swaps from variable to fixed interest rates.

3. Liquidity risk Liquidity is guaranteed at all times by means of a liquidity forecast focussed on a fixed planning horizon and by unused lines of credit and guarantee facilities.

4. Risk of default The risk of default on financial assets exists in terms of the risk of failure of a contract party and thus to a maximum in the amount of the carrying amount of the exposure to the said party. The risk arising from primary financial instruments is countered by means of value adjustments for bad debt, and in Germany also by means of credit insurance cover. As derivative financial instruments are entered into only with top-class banks, and the risk management system sets limits for each party, the actual risk of default is negligible.

102 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

33. Executive bodies In the year under review the Supervisory Board comprised the following members:

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

• Robert Feiger, (Deputy Chairman from April 28, 2006), Munich Regional Director of the IG Bau Bavaria trade union

• Wilken Freiherr von Hodenberg (Deputy Chairman until April 28, 2006, then member of the Supervisory Board), Königsstein im Taunus Member of the Management Board of Deutsche Beteiligungs AG, Frankfurt Supervisory Board, Dörries Scharmann GmbH, Mönchengladbach Quartus Gestion S.A., Paris, Membre du Conseil d'Administration DBG Osteuropa Holding GmbH, Frankfurt, Chairman of the Advisory Board

• Dr.-Ing. Dr.-Ing. E.h. Karlheinz Bauer, Schrobenhausen Former Managing Director of BAUER Spezialtiefbau GmbH, Schrobenhausen

• Elisabeth Teschemacher, née Bauer, architect (Dipl.-Ing.FH), housewife, Schrobenhausen

• Prof. Dr. jur. Klaus Englert, Attorney, (member of the Supervisory Board until April 28, 2006), Schrobenhausen Supervisory Board, BAUER Spezialtiefbau GmbH, Schrobenhausen Supervisory Board, Volksbank Schrobenhausen eG., Chairman

• Gerardus N.G. Wirken, Rÿen, Netherlands

Supervisory Board, Batenburg Beheer NV, Rotterdam Consolidated Financial Statements Supervisory Board, Vendor Beheer BV, Tilburg Supervisory Board, Advang Holding BV, Tilburg

Supervisory Board, Winters Bouw- en Ontwikkeling BV, Breda 2006 Supervisory Board, Rabobank Breda UA, Breda Supervisory Board, NIBO N.V., Amsterdam

• Dipl.-Ing. Walter Sigl, (member of the Supervisory Board from April 28, 2006), Schrobenhausen Member of the Management Board of BAUER Maschinen GmbH, Schrobenhausen

• Gerhard Riedelsheimer, (member of the Supervisory Board from April 28, 2006), Schrobenhausen Chairman of the Works Council of BAUER Aktiengesellschaft, Schrobenhausen

• Manfred Wagner, (member of the Supervisory Board from April 28, 2006), Schrobenhausen Chairman of the Works Council of BAUER Spezialtiefbau GmbH, Schrobenhausen Supervisory Board, BAUER Spezialtiefbau GmbH

• Norbert Ewald, (member of the Supervisory Board from April 28, 2006), Frankfurt am Main Head of the Economic, Construction and Labour Market Policy department on the Federal Executive Board of the IG Bauen-Agrar-Umwelt trade union

• Ronald Hühne, (member of the Supervisory Board from April 28, 2006), Nordhausen Supervisory Board, SCHACHTBAU NORDHAUSEN GmbH, Nordhausen Chairman of the Works Council of SCHACHTBAU NORDHAUSEN GmbH, Nordhausen

• Dipl.-Ing. (FH) Rainer Schuster, (member of the Supervisory Board from April 28, 2006), Freising

103 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

Management Board: • Prof. Dipl.-Kfm. Thomas Bauer, Chairman, Function: Subsidiaries, Schrobenhausen Chairman of Supervisory Board, BAUER Spezialtiefbau GmbH, Schrobenhausen Chairman of Supervisory Board, BAUER Maschinen GmbH, Schrobenhausen Chairman of Supervisory Board, SCHACHTBAU NORDHAUSEN GmbH, Nordhausen Supervisory Board, Sozialkassen der Bauwirtschaft, Wiesbaden (construction industry ancillary benefits and holiday benefits fund) Supervisory Board, Mannheimer Holding AG, Mannheim

• Dipl.-Betriebswirt (FH) Hartmut Beutler, Functions: Finance, Legal Affairs and Facility Management, Schrobenhausen

• Dipl.-Ing. Heinz Kaltenecker, Functions: Subsidiaries, Schrobenhausen Supervisory Board, BAUER Maschinen GmbH, Schrobenhausen Supervisory Board, SCHACHTBAU NORDHAUSEN GmbH, Nordhausen

• Dipl.-Ing. (FH) Mark Schenk, Functions: Human Resources, IT, Accounting and Controlling, Reichertshausen

The remuneration received by members of the Management Board for the 2006 financial year totalled EUR 1,650 thousand (previous year: 1,236 thousand), including the remuneration paid by subsidiaries. Of that total, EUR 887 thousand (previous year: 856 thousand) was in fixed salary, EUR 670 thousand (previous year: 267 thousand) in bonus payments, and EUR 93 thousand (previous year: 113 thousand) in company pension contributions. Former members of the Management Board or their surviving dependants received EUR 0 (previous year: 0). The projected unit credit calculated in accordance with IAS 19 in respect of pension commitments for this group of people totals EUR 0 (previous year: 0). The remuneration paid to the Supervisory Board for the 2006 financial year totalled EUR 144 thousand (previous year: 88 thousand) and was distributed as follows:

In EUR '000, excluding sales tax and expenses 2005 2006

Dr. Klaus Reinhardt 17 25 Wilken Freiherr von Hodenberg 17 15 Dr.-Ing. Dr.-Ing E.h. Karlheinz Bauer 16 13 Gerardus N. G. Wirken 11 13 Robert Feiger 0 12 Dipl.-Ing. (FH) Elisabeth Teschemacher 11 12 Manfred Wagner 0 9 Norbert Ewald 0 9 Gerhard Riedelsheimer 0 8 Dipl.-Ing. Walter Sigl 0 8 Dipl.-Ing. (FH) Rainer Schuster 0 8 Ronald Hühne 0 8 Dr.-Ing. Sebastian Bauer 5 0 Prof. Dr. jur. Klaus Englert 11 4 Total 88 144

104 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

34. Disclosures regarding related parties Related parties under the terms of IAS 24 are parties that the reporting enterprise has the ability to control or exercise significant influence over, or parties that have the ability to control or exercise significant influence over the reporting enterprise. All business transactions with non-consolidated subsidiaries and associated companies were executed at arm's-length principles.

Members of the Management Board of BAUER Aktiengesellschaft are members of Supervisory Boards and Management Boards of other companies with which BAUER Aktiengesellschaft maintains relations in the course of its ordinary business operations. All transactions with the said companies are executed subject to conditions also customarily applicable to third parties. Lease and service contracts exist with members of the Supervisory Board to an amount of EUR 767 thousand (previous year: 763 thousand). The major portion relates to the legal services contract with the attorney's office of Kupferschmid Englert Pichl Grauvogl & Colleagues. Members of the Supervisory Board received pensions totalling EUR 48 thousand (previous year: 48 thousand) in respect of former employment within the BAUER Group. The members of the Supervisory Board, by virtue of their role as employees, received remuneration totalling EUR 288 thousand (previous year: 257 thousand). Lease and service contracts and contracts of employment (except for the remuneration to members of the Management Board disclosed) exist with members of the Management Board, including close family, in respect of which remuneration to an amount of EUR 1,124 thousand (previous year: 1,045 thousand) was paid.

Loan commitments to the BAUER Foundation existed totalling EUR 650 thousand (previous year: 625 thousand), for which interest amounting to EUR 34 thousand (previous year: 33 thousand) was paid. At the end of the financial year no loan commitments existed to shareholders of BAUER Aktiengesellschaft (previous year: 1,748 thousand). For the reduced loan commitments in the 2006 financial year interest amounting to EUR 54 thousand (previous year: 80 thousand) was paid.

Most of the trading volumes between fully consolidated companies of the BAUER Group and related companies are presented in the following table: Consolidated Financial Statements

in EUR '000 Supplies and services rendered Supplies and services received 2006 Share 2005 2006 2005 2006

NDH Entsorgungsbetreiberges. mbH, Bleicherode 25 % 433 1,678 633 81

TERRABAUER S.A., Madrid 30 % 4,649 5,599 227 5

WÖHR + BAUER GmbH, Munich 33 % 0 0 577 1,925

NuBa Equipment Ltd., Edmonton 50 % 0 0 0 0

Nuna Drilling F.A.L.C. Ltd., Edmonton 25 % 0 0 0 0

in EUR '000 Receivables from Liabilities to

Share 2005 2006 2005 2006

NDH Entsorgungsbetreiberges. mbH, Bleicherode 25 % 0 333 101 5

TERRABAUER S.A., Madrid 30 % 643 1,018 0 0

WÖHR + BAUER GmbH, Munich 33 % 268 388 242 42

NuBa Equipment Ltd., Edmonton 50 % 3,980 3,583 0 0

Nuna Drilling F.A.L.C. Ltd., Edmonton 25 % 508 0 0 0

105 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

35. Fees and services of the auditors The fee paid to the auditors and recorded as expenditure in the financial year is broken down as follows:

PricewaterhouseCoopers AG: 2005 2006

Auditing fees 169 275 Fees for other certification and valuation work 2 663 Other fees 14 12

Total 185 950

The fees for other certification and valuation work relate primarily to the stock market listing of BAUER Aktiengesellschaft in the 2006 financial year.

36. Declaration of conformity to the German Corporate Governance Code The Management Board and Supervisory Board of BAUER Aktiengesellschaft issued their declaration in accordance with section 161 of the German Corporation Act (AktG) on December 8, 2006 and voluntarily published it in a form permanently accessible to shareholders on the company's website at www.bauer.de.

37. Average number of employees 2005 2006

Salaried staff 1,779 1,889

Germany 1,252 1,288

International 527 601

Industrial & trades 3,218 3,491

Germany 1,253 1,292

International 1,188 1,249

Daily workers 777 950

Apprentices 158 161

Total number of employees 5,155 5,541

For the sake of improved presentation within the Group, daily workers are included among the industrial and trades staff. The previous year's figure has been adjusted accordingly.

106 Notes to the 2006 Consolidated Financial Statements of the BAUER Group

38. Authorization for issue of the consolidated financial statements The Management Board has submitted the consolidated financial statements to the Supervisory Board for authorization for issue (the Supervisory Board meeting is scheduled for April 20, 2007).

39. Proposal on appropriation of net earnings available for distribution BAUER Aktiengesellschaft made a net profit available for distribution of EUR 9,047,760.78 in the financial year under review.

We propose to the Annual General Meeting the payment to shareholders of a dividend of EUR 0.50 per share (EUR 8,565,500). The remaining net earnings available for distribution to the amount of EUR 482,260.78 should be carried forward.

Schrobenhausen, March 23, 2007 The Management Board

Prof. Dipl.-Kfm. Thomas Bauer Dipl.-Ing. Heinz Kaltenecker

Dipl.-Betriebsw. Hartmut Beutler Dipl.-Ing. Mark Schenk Consolidated Financial Statements 2006

107 Major Participations of the BAUER Group at December 31, 2006

Name and registered office of company Capital share Currency in % 1. Fully consolidated companies BAUER Aktiengesellschaft EUR A. Germany BAUER Spezialtiefbau GmbH, Schrobenhausen, Germany EUR 99.00 BAUER Maschinen GmbH, Schrobenhausen, Germany EUR 99.00 SCHACHTBAU NORDHAUSEN GmbH, Nordhausen, Germany EUR 99.00 SPESA Spezialbau und Sanierung GmbH, Nordhausen, Germany EUR 99.00 BAUER Mietsystem GmbH, Schrobenhausen, Germany EUR 100.00 BAUER Dienste GmbH, Schrobenhausen, Germany EUR 100.00 HGC Hydro-Geo-Consult GmbH, Freiberg, Germany EUR 100.00 BAUER Designware GmbH, Schrobenhausen, Germany EUR 100.00 FWS Filter- und Wassertechnik GmbH, Dunningen-Seedorf, Germany EUR 100.00 BAUER Umwelt GmbH, Schrobenhausen, Germany EUR 100.00 BAUER und MOURIK Umwelttechnik GmbH, Nordhausen, Germany EUR 100.00 PURE Umwelttechnik GmbH, Schrobenhausen, Germany EUR 100.00 KLEMM Bohrtechnik GmbH, Drolshagen, Germany EUR 100.00 EURODRILL GmbH, Olpe, Germany EUR 100.00 BAUER Mietpool GmbH, Schrobenhausen, Germany EUR 100.00 RTG Rammtechnik GmbH, Schrobenhausen, Germany EUR 100.00 MAT Mischanlagentechnik GmbH, Immenstadt, Germany EUR 74.00 PRAKLA Bohrtechnik GmbH, Peine, Germany EUR 60.00 ErdWärmeNetz GmbH, Schrobenhausen, Germany EUR 90.00 SCHACHTBAU NORDHAUSEN GROSSPROJEKTE GmbH, Nordhausen, Germany EUR 100.00 MMG Mitteldeutsche MONTAN GmbH, Nordhausen, Germany EUR 100.00 SPESA Korrosionsschutz und Beschichtungen GmbH, Nordhausen, Germany EUR 100.00 B. EU excluding Germany REM FWS Kft., Budapest, Hungary HUF 100.00 BAUER Spezialtiefbau Ges.m.b.H., Vienna, Austria EUR 100.00 BAUER Technologies Ltd. (subsidiary consolidated financial statements), Beverley, Great Britain GBP 100.00 BAUER Inner City Ltd., Warrington, Great Britain GBP 100.00 Newline Ltd., Warrington, Great Britain GBP 100.00 BRK-Speciális Mélyépitö Kft., Budapest, Hungary HUF 100.00 BAUER Funderingstechnieken B.V., SK Mijdrecht, Netherlands EUR 100.00 BAUER Foundations (IRL) Ltd., Dublin, Ireland EUR 100.00 BAUER Fondations Spéciales S.A.S., Strasbourg, France EUR 100.00 BAUER Cimentaciones y Equipos S.A., Madrid, Spain EUR 100.00 TracMec Srl., Mordano, Italy EUR 100.00

108 Name and registered office of company Capital share Currency in % C. Europe other BAUER Romania SRL, Bucharest, Romania RON 100.00 BAUER Spezialtiefbau Schweiz AG, Baden, Switzerland CHF 100.00 BAUER Maschinen KSM GmbH, Kurgan, Russian Federation RUB 65.00 D. Middle East Saudi BAUER Foundation Contractors Ltd., Jeddah, Saudi Arabia SAR 100.00 BAUER Lebanon Foundation Specialists S.a.r.l., Beirut, Lebanon USD 100.00 BAUER Gulf F.Z.E., Dubai, United Arab Emirates AED 100.00 BAUER Equipment Gulf FZE, Dubai, United Arab Emirates AED 100.00 E. Far East BAUER Malaysia SDN. BHD. (subsidiary consolidated financial statements), Petaling Jaya, Malaysia MYR 100.00 BAUER Foundation Australia Pty Ltd., Brisbane, Australia AUD 100.00 P.T. BAUER Pratama Indonesia, Jakarta, Indonesia IDR 100.00 BAUER Services Singapore Pte. Ltd. (subsidiary consolidated financial statements), Singapore SGD 100.00 BAUER Hong Kong Ltd. (indirect), Hong Kong, People's Republic of China HKD 70.00 BAUER Hong Kong Ltd. (direct), Hong Kong, People's Republic of China HKD 30.00 BAUER Foundations Philippines, Inc., Quezon City, Philippines PHP 100.00 Consolidated Financial Statements BAUER Technologies Far East Pte. Ltd. (subsidiary consolidated financial statements), Singapore SGD 100.00 BAUER Technologies (S) Pte. Ltd., Singapore SGD 100.00 2006 BAUER Technologies Taiwan Ltd., Taipei, Taiwan TWD 100.00 BAUER Tianjin Technologies Co., Ltd., Tianjin, People's Republic of China CNY 100.00 BAUER Equipment Hong Kong Ltd., Hong Kong, People's Republic of China HKD 100.00 BAUER Equipment (MALAYSIA) Sdn. Bhd., Kuala Lumpur, Malaysia MYR 100.00 Shanghai BAUER Technologies Co., Ltd., Shanghai, People's Republic of China CNY 100.00 BAUER Equipment (Thailand) Co., Ltd., Bangkok, Thailand THB 100.00 Nippon BAUER YK, Tokyo, Japan JPY 100.00 F. America Coastal Caisson Corp., Clearwater, United States of America USD 100.00 BAUER Fundaciones Chile Ltda., Santiago, Chile CLP 100.00 BAUER Equipos Argentina S.A., Buenos Aires, Argentina ARS 100.00 BAUER Mexico, S.A. de C.V., Mexico City, Mexico MXP 100.00 BAUER America Latina S.A., Lima, Peru PEN 100.00 BAUER Equipment of Canada Ltd., Edmonton, Canada CAD 100.00 PILECO Inc., Houston, United States of America USD 100.00 Pilemac Inc., Livermore, United States of America USD 100.00

109 Name and registered office of company Capital share Currency in % G. Other BAUER EGYPT S.A.E., Cairo, Egypt EGP 55.75 BAUER New Zealand Limited, Auckland, New Zealand NZD 100.00 BAUER Technologies South Africa (PTY) Ltd. (subsidiary consolidated financial statements), ZAR 100.00 Cape Town, South Africa Mineral Bulk Sampling Namibia (PTY) Ltd., Windhoek, Namibia ZAR 51.00 Mineral Bulk Sampling South Africa (PTY) Ltd., Cape Town, South Africa ZAR 51.00 2. Associated companies A. Germany WÖHR + BAUER GmbH, Munich, Germany EUR 33.33 NDH Entsorgungsbetreiberges. mbH, Nordhausen, Germany EUR 25.00 B. International TERRABAUER S.A., Madrid, Spain EUR 30.00 NuBa Equipment Ltd., Edmonton, Canada CAD 50.00 Nuna Drilling F.A.L.C. Ltd., Edmonton, Canada CAD 25.00

3. Enterprises in which the company has participating interests A. Germany TMG Tiefbaumaterial GmbH, Kissing, Germany EUR 33.33

Nordhäuser Bauprüfinstitut GmbH, Nordhausen, Germany EUR 20.00 B. International GRS Remediation System Ltd., Wigan, Great Britain GBP 50.00 THAI BAUER Co. Ltd., Bangkok, Thailand THB 10.00 Mostostrojindustrija, Moscow, Russian Federation RUB 15.00

110 Auditors' Report

e have audited the consolidated financial statements prepared by the BAUER Aktiengesellschaft, Schrobenhausen, comprising the balance sheet, the income statement, statement of changes in equity, cash flow statement and the notes to the consolidated financial statements, together with the Group management report for the business year from January 1 to December 31, 2006. The preparation of the consolidated financial statements and the Group management report in accordance with the IFRS, as adopted by the EU, and the additional requirements of German commercial law pursuant to § (Article) 315a, Abs. (paragraph) 1 HGB ("Handelsgesetzbuch": German Commercial Code) are the responsibility of the parent company's Management Board. Our responsibility is to express an opinion on the consolidated financial statements and the Group management report, based on our audit. We conducted our audit of the consolidated financial statements in accordance with § 317 HGB and the generally accepted German standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the Group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the Group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of the entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by the company's Management Board, as well as evaluating the overall presentation of the consolidated financial statements and the Group management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the consolidated financial statements comply with the IFRS as adopted by the EU and the Consolidated Financial Statements additional requirements of German commercial law pursuant to § 315a, Abs.1 HGB, and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The Group management report is consistent with 2006 the consolidated financial statements, and as a whole provides a suitable view of the Group's position, and suitably presents the opportunities and risks of future development.

Stuttgart, March 23, 2007

Bäder ppa. Guilliard Auditor Auditor

111 Imprint

Published by BAUER Aktiengesellschaft Wittelsbacherstrasse 5 86529 Schrobenhausen, Germany Office of the Management Board: Telephone: +49 8252 97-1215 Fax: +49 8252 97-2900 e-mail: [email protected] www.bauer.de Registered place of business: 86529 Schrobenhausen, Germany Registered at the District Court of Ingolstadt under HRB 101375

Layout Based on draft by Winfried Moser, Schrobenhausen

Photos BAUER Group

Printed by Kastner AG - das medienhaus Wolnzach

This Annual Report is published in German and English.