Group - L. Possehl & Co. mbH

Surface Technics: The division was able to expand both sales
and earnings. Along with strong economic demand, process improvements
increased the competitiveness of industrial galvanizing. Sales of
chemicals and baths for jewelry galvanizing also benefited galvanizing
technology.
After routinely producing losses in recent years, the division was
able to achieve the first positive result in some time during the reporting
year.
Dental: The market for precious metal dental alloys still has not
fully recovered from its collapse in 2005 caused by the introduction
of a fixed subsidy system by legal health insurers. The ongoing trend
toward the use of alloys without precious metals and of ceramics,
which has been reinforced by high prices for precious metals, had a
negative impact on the business with precious metal dental alloys.
Through additional cost reductions and price adjustments, however,
results improved slightly.
No significant changes are expected in the business development
of Heimerle + Meule in 2008. Due to the establishment of a subsidiary
in Vienna at the beginning of 2008, we anticipate sales growth over
the medium term in Austria and neighboring countries particularly in
the area of semi-finished jewelry.
Electronics: Normalization of Sales and Earnings
The Electronics division could not duplicate the extremely good
result of the previous year. Along with a normalization of sales as a
result of a cyclical semiconductor market, the weak US dollar and high
metal prices impaired earnings. In addition, moving the Chinese factory
from Shenzen to Dongguan had a greater impact on earnings than
expected. Nevertheless, the division – the most profitable – achieved a
positive result with double-digit return on sales.
Net sales declined by e 34.9 million to e 186.8 million. This
decline is equally attributable to lower sales volumes and the decline
of the US dollar. Lower sales volumes affected the business with leadframes
and connectors, while sales of smart cards were virtually
unchanged.
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Due to the expected sustained weakness of the US dollar, cost
reductions were carried out during the reporting year. These included
a reduction in staff and the closure of a production site for connectors
in the USA.
The ongoing weakness of the US dollar and signs of weaker growth
in the semiconductor branch are expected to weigh on results in 2008
as well.
Elastomer Processing: Successful acquisition in rubber
Mixing technology and restructuring in Extrusion
The performance of the Elastomer Processing division was mixed
in the reporting year. While in particular the product areas of rubber
mixing, heated presses, and tire building machines could expand both
sales and earnings significantly, a restructuring program was introduced
and already substantially implemented for the extrusion product
area as a result of sustained losses. Total net sales of e 235.7
million rose by e 37.2 million or 18.7 % over the previous year. Of this
amount, about half was attributable to the 100 % acquisition of Milanbased
Pomini Rubber & Plastics S.r.l. on April 1, 2007. Along with the
sales increase, Pomini also had a positive impact on the earnings of
the division.
Capital investments of the tire industry, the most important
customer group for Harburg-Freudenberger, remained high last year.
The product areas of heated presses, rubber mixing, and tire building
machines derived the greatest benefit from these developments.
The relocation of tire production toward the growth markets
China, India, and Brazil continued in the reporting year. Along with
its good customer relationships with the large tire manufacturers,
Harburg-Freudenberger is following this trend by establishing a subsidiary
in Qingdao, China. Substantial potential for our tire production
machines continues to exist in Eastern Europe and Russia, where local
tire manufacturers are boosting their investments in modernization.
The demand for machines and plants for edible oil technology
did not match the level of the previous year due to an unclear political
climate.
Assuming the same conditions, we expect moderate sales growth
next year. The restructuring steps that have been taken and the high
level of order backlog as of the end of fiscal year 2007, which cover
almost all of 2008, should lead to an improvement in earnings.