Dr Juergen M. Geissinger

Introduction by the Chief Executive Officer

Ladies and Gentlemen

The year 2011 was another very successful one for Schaeffler AG. Despite the uncertain economic environment during the second half of the year, particularly in Europe, we generated revenue of EUR 10,694 m, exceeding the prior year’s record level by 12.6 %. We also set a new earnings record. Our earnings before financial result and income taxes ( EBIT) was EUR 1,689 m following EUR 1,509 m in the prior year, with all sectors of our two divisions Automotive and Industrial making significant contributions. At the same time, we were able to gradually improve our free cash flow during the course of the year.

The basis of this excellent success is the outstanding strategic position of Schaeffler AG. We [--break--]  supply tailored products and systems of the highest quality to our customers in the automotive sector and in a large number of industrial sectors. Our operating processes, which hold a leading position worldwide with respect to technology, quality and economic efficiency, are the foundation of this uncompromising focus on customer orientation.

The components and systems solutions we offer our customers meet the highest technological and quality standards. We are continually improving our processes and products in light of [--break--]  our ambition to achieve zero-defect results. We are developing measures to avoid errors and defects in all areas under our quality program “Fit for Quality”, and are constantly reducing our already very low error rate. We are gradually expanding our “ MOVE” program from increasing efficiency in our manufacturing processes, the Schaeffler production system, to process improvements in areas ranging from supply chain management all the way to optimizing our administrative functions.

In addition, we are expanding our presence in the growth regions, particularly in Asia and North America. Based on the slogan “In the region for the region”, we are developing our production, development, and distribution locations in direct proximity to our customers. As part of our strategy of accessing new regional markets and customers, we are further diversifying [--break--]  our innovative product range and are putting more emphasis on offering consulting and engineering services. With our 150 locations worldwide, we are advising and supplying customers in more than 50 countries. We are adding to our understanding of technology and processes by collaborating extensively across units and countries. This knowledge transfer puts us in an excellent position to be able to react quickly and flexibly to new customer requirements and to anticipate future trends.

Extensive research and development turns visions into reality and is the foundation for future profitable growth. With its nearly 6,000 employees in 40 research and development centers and approximately 18,000 patents and patent applications worldwide, Schaeffler is among the most innovative companies in its industry and in Germany. We have again spent approximately 5 % of [--break--]  our revenue on research and development in 2011 in order to further strengthen our international competitive position. Our focus is on developing and producing high-technology and innovative components, modules and systems solutions in order to actively drive forward the fundamental [--break--] trends in the automobile sector and in our many customer sectors in industry – energy efficiency, renewable energy, mechatronic systems and electric mobility. We are concentrating our expertise relating to this promising area in our “eMobility” Systems division. The Schaeffler Hybrid, our car full of ideas for electric mobility, and the ACTIVeDRIVE, our electric vehicle with active torque distribution, are only two examples of how we have established benchmarks in this field during the year.

We are combining our expertise regarding mechanical components with Continental AG’s know how regarding electronics to further expand our presence in the rapidly growing mechatronics segment and to establish ourselves as a leading provider in this field. Thanks to our purchasing cooperation with Continental AG, we are realizing cost synergies for instance in purchasing processes and structures and in developing suppliers. We are planning to not only implement the procurement and supply strategies, but also to further develop standards and processes and intensify our global cooperation and networking.

Against this backdrop, Schaeffler AG has again set itself challenging targets for the coming year. We want to continue growing more rapidly than the market, maintain our good profitability, and gradually improve our cash flow further. At the same time, we are aiming to further optimize our capital structure and gradually reduce our debt.

Our dedicated and highly qualified employees are the foundation of our economic success this past year and of our growth in the future. However, to us as a family-owned company, they mean much more than that. Complying with high social and environmental standards is a key component of our social responsibility, to which we are all committed. Our production locations have reached top levels in this area worldwide. We specifically support our employees and develop their awareness in this holistic sense, laying the groundwork for profitable long-term growth.

We would like to express our heartfelt gratitude to our employees for their strong commitment and dedication. On behalf of the entire executive board, I would also like to thank the supervisory board and our shareholders for a cooperation that is constructive and based on a long-term view.

Best regards

[--break--] Dr Juergen M. Geissinger
[--break--] Chief Executive Officer (CEO)