A n n u a l R e p o r t 2008

The BAUER Group is an international construction and machinery manufacturing

concern based in Schrobenhausen, Bavaria. The MDAX-listed holding company

BAUER Aktiengesellschaft is the parent of more than 100 subsidiary businesses

in the fields of construction, equipment and resources. Bauer is a leader in the

execution of complex excavation pits, foundations and vertical seals, as well

as in the development and manufacture of related machinery for this dynamic

market. The Group also deploys its expertise in the exploration, mining and

safeguarding of valuable natural resources. In 2008 the companies of the

BAUER Group employed some 8,600 people in over 60 countries and achieved

total Group revenues of EUR 1.53 billion.

Passion for progress

The origins of Bauer date back as far as 1790, and still today the company's

success is founded on highly flexible application of the specialist know-how it

has built up over those many years. As an innovator and technological leader,

Bauer has played a major role in the advancement of the international specialist

foundation engineering industry and related business fields. Indeed, today

Bauer is also the world market leader in manufacture of the relevant machinery.

It is with just such innovative strength and a keen focus on the challenges of

the future, that the Group is also developing its recently established Resources

segment.

GROUP KEY FIGURES 2006–2008

IFRS in EUR million 2006 2007 2008 Change

Total Group revenues 979.9 1,208.1 1,527.2 26.4 %

of which Germany 282.2 331.6 379.5 14.4 %

International 697.7 876.5 1,147.7 30.9 %

International in % 71.2 72.6 75.2 n/a

of which Construction 538.8 531.8 700.9 31.8 %

Equipment 452.4 643.1 780.1 21.3 %

Resources 63.9 112.0 135.1 20.6 %

Other/Eliminations/Consolidations -75.2 -78.8 -88.9 n/a

Consolidated revenues 914.2 1,159.4 1,455.3 25.5 %

Sales revenues 835.4 1,033.0 1,290.8 25.0 %

Orders received 1,056.1 1,403.8 1,580.7 12.6 %

Orders in hand (as per December of current year) 422.4 618.0 671.6 8.7 %

EBITDA 123.2 185.4 228.4 23.2 %

EBITDA margin in % (of sales revenues) 14.7 17.9 17.7 n/a

EBIT 73.0 131.8 167.5 27.1 %

EBIT margin in % (of sales revenues) 8.7 12.8 13.0 n/a

Net profit or loss 35.2 74.4 107.5 44.5 %

Capital investment in property, plant and equipment 61.1 96.4 140.6 45.9 %

Shareholders' equity 222.6 279.1 372.6 33.5 %

Equity ratio in % 34.6 34.1 35.8 n/a

Net assets 643.7 818.0 1,041.5 27.3 %

Earnings per share * 2.17 4.23 6.09 44.0 %

Dividend payment (2008 proposal) 8.57 17.13 17.13 0.0 %

Dividend per share in EUR (2008 proposal) * 0.50 1.00 1.00 0.0 %

Return on equity after tax in % ** 23.7 33.4 38.5 n/a

Employees (on average over the year) 5,541 6,983 8,674 24.2 %

of which Germany 2,741 3,324 3,781 13.7 %

International 2,800 3,659 4,893 33.7 %

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.

* 1:6 share split from 2006 already included for all years.

** The calculation base has changed. Previous year's figures have been adjusted accordingly.

The Group at a glance

DEVELOPMENT OF EBIT AND AFTER-TAX PROFIT

in EUR million

2006

2007

2008

73.0

131.8

167.5

DEVELOPMENT OF WORKFORCE NUMBERS

2006 5,541

2007 6,983

2008 8,674

DEVELOPMENT OF TOTAL GROUP REVENUES BY SEGMENT

in EUR million

2006 980

2007 1,208

2008 1,527

6-YEAR OVERVIEW

in EUR million 2003 2004 2005 2006 2007 2008

Total Group revenues 634.0 664.0 824.3 979.9 1,208.1 1,527.2

Sales revenues 576.5 602.4 717.5 835.4 1,033.0 1,290.8

EBIT 34.9 31.6 47.5 73.0 131.8 167.5

Net profit or loss 13.8 8.7 19.5 35.2 74.4 107.5

Employees 4,629 4,810 5,155 5,541 6,983 8,674

Equipment ResourcesConstruction

ProfitEBIT

517 62401

509 107592

683 131713

35.2

74.4

107.5GR

OUP

KEY

FIGU

RES

AT A

GLA

NCE

>>>

BAUER Aktiengesellschaft2008 Annual Report

2 Management Board of the Company

5 Foreword

8 Milestones in the Company's History

10 The World is our Market

12 Construction Segment

16 Equipment Segment

20 Resources Segment

24 The BAUER Share

27 Corporate Governance Report

31 Report of the Supervisory Board

35 Group Management Report

35 I. Macro-Economic Trend

38 II. Company Situation

52 III. Earnings, Financial and Net Asset Position

57 IV. Orders in Hand, Capital Investments, Research and Development, Employees and Environment

61 V. Follow-up Report

62 VI. Opportunity and Risk Report

66 VII. Outlook

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

75 Consolidated Financial Statements in accordance with IFRS

134 Declaration of the Management Board

135 Auditors' Report

136 Imprint

PROF. DIPL.-KFM. THOMAS BAUER (CHAIRMAN)

Professor Thomas Bauer (born 1955) heads the function

Participations in Subsidiaries on the Management Board of

BAUER Aktiengesellschaft.

After studying business economics at the Ludwig Maximilian

University in Munich, he worked in the USA. He joined the

family company in 1982. In 1986 he became sole managing

director of BAUER Spezialtiefbau GmbH and since 1994 he

has been Chairman of the Management Board of BAUER

Aktiengesellschaft.

Professor Thomas Bauer is President of the Bavarian Con-

struction Industry Association, Vice-President for Economics

of the Confederation of the German Construction Industry

and Vice-President of the Confederation of Bavarian Industry

(vbw). He is an honorary professor of the Technical University

of Munich.

Supervisory Board mandates:

• BAUER Spezialtiefbau GmbH, Schrobenhausen

(Chairman) ¹

• BAUER Maschinen GmbH, Schrobenhausen

(Chairman) ¹

• SCHACHTBAU NORDHAUSEN GmbH, Nordhausen

(Chairman) ¹

• BAUER EGYPT S.A.E., Cairo (Chairman) ¹

• BAUER Resources GmbH, Schrobenhausen ¹

• Zusatzversorgungskasse des Baugewerbes AG,

Wiesbaden (to 30.06.2008) ²

• Sozialkassen der Bauwirtschaft, Wiesbaden (construction

industry ancillary benefits and holiday benefits fund)

(to 30.06.2008) ²

• Mannheimer Holding AG, Mannheim ²

DIPL.-BETRIEBSWIRT (FH) HARTMUT BEUTLER

Hartmut Beutler (born 1957) is responsible for the Finance,

Legal Affairs and Insurance, and Facility Management func-

tions on the Management Board of BAUER Aktiengesellschaft.

He studied business economics (specializing in the construction

industry) at the Biberach Technical College and joined BAUER

Spezialtiefbau GmbH as a trainee in 1983. He later became

deputy head of that company's Accounting department and as-

sistant to the Management Board. After working as head of IT,

Facility Management, Legal Affairs and Insurance at BAUER

Spezialtiefbau GmbH, as well as being a company "Prokurist"

(holder of power of attorney), Hartmut Beutler was appointed to

the Management Board of BAUER Aktiengesellschaft in 2001.

Supervisory Board mandates:

• BAUER Resources GmbH, Schrobenhausen ¹

• Raiffeisenbank Schrobenhausen e. G. (Chairman) ²

Management Boardof the Company

2

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)

DIPL.-ING. HEINZ KALTENECKER

Heinz Kaltenecker (born 1951) is responsible for Participations

in Sub sidiaries on the Management Board of BAUER AG.

After studying civil engineering at the Technical University of

Karlsruhe, he joined BAUER Spezialtiefbau GmbH in 1978. In

1981 Heinz Kaltenecker became technical director of BAUER

EGYPT S.A.E. He then performed a number of senior manage-

ment functions, including being managing director of Bauer

Spezialtiefbau from 2001 to 2007. Heinz Kaltenecker has

been managing director of BAUER Resources GmbH since

mid-2007. He has been a member of the Management Board

of BAUER Aktiengesellschaft since 1997. Heinz Kaltenecker is

a board member of the German Geotechnical Society and a

member of the Large Construction Companies subcommittee

of the Confederation of the German Construction Industry.

Supervisory Board mandates:

• BAUER Spezialtiefbau GmbH, Schrobenhausen ¹

• BAUER Maschinen GmbH, Schrobenhausen ¹

• SCHACHTBAU NORDHAUSEN GmbH, Nordhausen ¹

DIPL.-ING. (FH) MARK SCHENK

Mark Schenk (born 1960) is responsible for the Human

Resources, IT, Accounting and Controlling functions on the

Management Board of BAUER Aktiengesellschaft. He is also

the Labour Relations Director.

Mark Schenk studied computer sciences at the Technical

University of Hamburg and from 1987 to 2000 worked for a

number of leading management consultants. His areas of

responsibility included business management, planning and

controlling as well as managing change. He has been a mem-

ber of the Management Board of BAUER Aktiengesellschaft

since 2000.

3

Lobby of the new head office administration building constructed in 2007.

5

Foreword

Dear Shareholders, Partners and Friends,

Ladies and Gentlemen,

We are pleased to reveal in our 2008 Annual Report that the performance of our Group has once again been outstanding over

the past year. Our revenues and earnings grew much more strongly than we forecast last year. The success of our Construction

segment is particularly pleasing. After many difficult years, the segment's outstanding performance demonstrates that our gen-

eral strategy of establishing construction services and equipment sales as equal arms of the business for the future was correct.

The Equipment segment once again outstripped the excellent performance levels it had achieved in 2007. Our orders in hand

were also maintained at a healthy level. They remain well up on last year, despite the slight drop in the second half, and based

on the shorter order lead times on the various markets they provide a sound basis for the future. Trends in our third segment –

Resources – were also positive.

The global economic trend – especially the dramatic consequences of the financial market crisis – is bound to affect some areas

of our business. This will pose a number of challenges to us in 2009, and we intend to meet those challenges with commitment,

enthusiasm and new ideas. We certainly cannot expect to see further growth in our revenues again this year. In fact, we forecast

that they will decline slightly. Our earnings will be roughly on a par with 2007. We have taken great care to make this forecast as

accurate as possible, despite the many uncertainties. It assumes that the economic recovery programmes devised by the govern-

ments of many countries at the end of 2008 will in fact be implemented and that they will deliver a degree of stability to counter

the downturn.

We are of course in regular contact with the management of our subsidiaries in many parts of the world, enabling us to retain

an overview of where all our opportunities lie and to develop a coordinated response to these. In spite of the crisis that has en-

veloped most of the world, we are pleased to note that the market is still offering many major projects which will potentially bring

us profitable business. It is a well-known fact that the infrastructure in many industrialized nations is in a rather depleted state.

For example, in the USA – and indeed in Germany too – many bridges require renovation because they no longer meet the safety

standards required for modern-day traffic loads. The same applies with regard to the state of many reservoir dams, some of which

were built in the last century, often applying deficient engineering techniques, as a result of which they have since become dam-

aged by undermining. Major remedial work is needed to prevent possible disaster, and such work cannot be postponed even in

the face of economic crisis. We are currently working along with other specialist foundation engineering companies on the reme-

diation of the Hoover Dike in Florida – a project which will result in construction contracts totalling as much as one billion dollars

over the coming years. The increasing prevalence of flooding in many countries all over the world also makes it essential to repair

or enlarge flood defence dams and dikes. Even minor overflows can very quickly lead to erosion which completely destroys the

dam structure, entailing very high cost – to say nothing of the human suffering involved. Such disasters can only be prevented by

cut-off walls reinforcing the insides of the dams, and their construction poses an enormous challenge to the specialist foundation

engineering industry worldwide. New dam sealing methods are providing us with improved opportunities to acquire business in

this area.

As well as carrying out such urgent remedial civil engineering works, we will also be in a position to exploit wide-ranging oppor-

tunities arising from the economic recovery programmes being implemented by many governments, some of which involve

6

Foreword

additional infrastructure projects. In view of those factors, it is even conceivable that some of our business units may exceed our

current revenues and earnings forecasts. We will make every effort to utilize the opportunities which arise.

When an economic crisis takes hold, it is always important to take stock of available resources and to identify whether the

strengths of the business are adequate to overcome the crisis. Over recent months we have subjected our business to an inten-

sive review in order to establish whether we have made adequate provision for potential risks on our various markets and whether

our product developments are sufficient to exploit any new opportunities. Despite some deficiencies, which can never be entirely

eliminated, we believe we are very well equipped to meet the challenges of the future.

The key is of course the Group's financial stability. By the end of 2008, we had once again substantially strengthened our balance

sheet over the previous year, based on our own activity. We regard our equity ratio of 35.8 percent as a sound basis for overcom-

ing any potential current or future risks. The ratio is well above the industry average. The relatively high level of debt is normal

when carrying out short-term projects and is customary within the machinery manufacturing sector. To avoid major risk arising

from borrowings, most are long-term arrangements. We have arranged adequate lines of credit with our bankers to cover our

in-year additional financing requirements.

We have substantially expanded our market position in recent years and have a sound footing in all three segments: our Construc-

tion segment carries out the full range of specialist foundation engineering works and services, our Equipment segment supplies

all equipment and machinery for specialist foundation engineering projects and our Resources segment offers a wealth of tech-

nical expertise. No other company in the world is able to offer such a wide range of products and services on our respective mar-

kets. In order to provide additional products and services in future, and so balance out any declines in individual markets, we have

been developing new products and processes in all our segments in recent years. One example of this is our range of deep-level

drilling rigs, which will enable us in future to offer drilling operations down to depths of some 4,000 metres. New large-scale base

carrier units manufactured in-house will in future enable us to offer even our largest cutters on our own base carriers. In the envi-

ronmental technology field, we have devised biological cleaning systems capable of cleaning enormous quantities of process

water from the oil industry on a square kilometre scale.

A further benefit of the strategy which we have been consistently pursuing for decades is our global presence in all the segments

of our business. Construction markets tend to be regionally very cyclical. When serving multiple markets in parallel, it is possible

to compensate for negative trends on one market by exploiting positive trends on another. This enables an international business

to spread its capacities efficiently. We have been utilizing this effect for years by organizing our regional businesses into network

structures in order to balance their capacities.

When an international economic crisis starts to affect all markets equally, the possibility of regional counterbalancing is of course

lessened. We do however expect that countries all over the world will attempt to counteract the current crisis to a varying extent

by investing in construction projects. We are therefore relatively optimistic that our strategy will be beneficial to the BAUER Group

even in the current situation.

When it comes to dealing with difficult times in the future, there is no doubt that a company's key strength and resource is its

people. This is one of the reasons why we attach so much importance to upholding a strong corporate culture. We want our

employees to be committed to their company and to enjoy their work. We have established sound foundations to ensure that this

is the case: appropriate and motivational remuneration, well-organized workplaces, a constructive and communicative working

climate, recognition of each individual’s performance and – not least – a spirit of friendship and community, with a range of staff

events and activities. And these are just a few examples. It demands great effort and commitment on the part of management and

staff to achieve this. Another key factor is comprehensive on-the-job training at every level. All our employees are provided with

the opportunity to develop their skills and learn new ones. Ultimately, the workforce and the company must be aware of the fact

that loyalty is a two-way process. Our employees know that we will make every effort to preserve jobs, even in difficult times.

We regard the excellent working climate within the BAUER Group as one of its major strengths. It is one of the factors that enable

us to keep staff fluctuation remarkably low. Particularly in difficult times, we know that we can rely on our employees to commit all

their efforts to overcoming any problems we may face together. In the past we have filled senior management posts from within,

by appointing experienced, long-serving Bauer employees. Such an approach gives all our business units a stability that enables

us to face whatever challenges the future may bring.

All in all, we are able to look to the future with confidence. Past experience demonstrates that we will counter the risks which we

have identified in the appropriate manner. We even regard identified risk as a source of opportunity. Provided that we are able to

respond to change more rapidly than other businesses, with the right answers to the challenges posed, then the BAUER Group will

emerge from this global crisis stronger than ever. We and all our employees will work hard to achieve exactly this. We also invite

you – our shareholders, business partners and friends – to join us in building a successful future.

Best regards,

Prof. Thomas Bauer

7

Foreword

>>> 1790

Sebastian Bauer acquires a coppersmith's shop in the

centre of Schrobenhausen; in the 19th century, subse-

quent Bauer generations were engaged in copper work-

ing, primarily for breweries and domestic households

>>> 1900

Start of well drilling by Andreas Bauer

>>> 1902

Drilling of an artesian well for the Schrobenhausen

railway station

>>> 1928

Dipl.-Ing. Karl Bauer constructs the Schrobenhausen

water supply system; construction of wells and water

pipes throughout Bavaria

>>> 1948

First works on Wittelsbacherstrasse

>>> 1956

Dr.-Ing. Karlheinz Bauer, a shareholder in the company

since 1952, becomes sole managing director

Construction of the first office building Wittelsbacherstrasse

Milestones in the Company's History

8

1790 1900–1956

17 9 0 · 19 0 0 · 1 9 0 2 · 19 2 8 · 19 4 8 · 19 5 6 · 19 5 8 · 19 6 7 · 19 6 9 · 19 7 2 · 19 7 5 · 19 7 6 · 19 8 4 · 19 8 6 ·

Dipl.-Ing. Karl Bauer (left) turned the company into an indus-

trial well builder known throughout Bavaria. Dr.-Ing. Karlheinz

Bauer (centre) led the company onto the international stage,

taking it into the field of specialist foundation engineering and

launching equipment manufacturing operations. Prof. Dipl.-

Kfm. Thomas Bauer shaped the current global Group, with a

network of operations on every continent.

>>> 1840

Copper roof for the spire of St. Jacob's Church

in Schrobenhausen

>>> 1958

Invention of the injection anchor on the construction site

of the Bayerischer Rundfunk building in Munich

>>> 1967

New workshops on Pöttmeser Strasse

>>> 1969

First anchor drilling rig UBW 01

>>> 1972

Construction of the new head office administration block

>>> 1975

First contracts in Libya, Saudi Arabia and the United

Arab Emirates

>>> 1976

First heavy-duty rotary drilling rig BG 7

>>> 1984

Works complex West begins operations

Construction and deployment of the first trench cutter

to seal the Brombach lake

First contracts in the Far East

>>> 1986

BAUER Spezialtiefbau GmbH, Prof. Thomas Bauer

becomes sole managing director and drives forward

the international growth of the Group

>>> 1990

Founding of BAUER und MOURIK Umwelttechnik GmbH

and of SPESA Spezialbau und Sanierung GmbH

>>> 1992

Takeover of SCHACHTBAU NORDHAUSEN GmbH

>>> 1994

Founding of BAUER Aktiengesellschaft

>>> 1998

Takeover of KLEMM Bohrtechnik GmbH

>>> 2001

BAUER Maschinen GmbH becomes an

independent company

Acquisition of EURODRILL GmbH

>>> 2002

Acquisition of works for Bauer Maschinen in Aresing

>>> 2003

Acquisition of FWS Filter- und Wassertechnik GmbH

>>> 2004

Acquisition of the majority shareholding in

PRAKLA Bohrtechnik GmbH

>>> 2005

Founding of TracMec Srl, Imola, Italy and of

Pileco, Inc., Houston, Texas, USA

>>> 2006

In July, BAUER AG is listed on the stock market

>>> 2007

Founding of BAUER Resources GmbH following

acquisition of the GWE Group

Major construction projects: New head office administra-

tion building in Schrobenhausen, expansion of machin-

ery capacities in Aresing and Nordhausen and at Tianjin

and Shanghai in China

>>> 2008

BAUER Resources acquires a majority shareholding in

Esau & Hueber GmbH and FORALITH Group

New machinery manufacturing plant in Edelshausen

1958–1998 2001–2008

· 19 9 0 · 19 9 2 · 19 9 4 · 19 9 8 · 2 0 0 1 · 2 0 0 2 · 2 0 0 3 · 2 0 0 4 · 2 0 0 5 · 2 0 0 6 · 2 0 0 7 · 2 0 0 8

9

The World is our Market

Within our Group

structure, a large

number of subsidiaries

and branch offices serve

regional markets –

independently and in

line with their specific

needs. At the same time,

the member companies

are able to call upon

the strong Bauer

network in order to

respond flexibly

to market fluctuations

and transfer capacities

accordingly.

Construction

Equipment

Production locations

Resources

The Construction segment of the BAUER Group performed the

best of all the Group's segments in relative terms in 2008.

After the many years in which the low levels of domestic busi-

ness would have made such a statement unthinkable, this

development is particularly pleasing.

Although weak prices on the German construction market

continued to depress our domestic business to some extent,

we succeeded in making a healthy profit. This was despite the

fact that only a few large-scale specialist foundation engineer-

ing contracts came up for tender during the last year, and sus-

tained tight competition meant that pricing and terms were out

of line with the risk faced. The only acceptable exception for

us was a contract to carry out the specialist foundation engi-

neering on the Wusterwitz canal lock to the west of Berlin.

However, a larger number of smaller projects – standard exca-

vation pits and foundation works – enabled us to deploy the

skills, technology and experience of our specialist staff to the

optimum. The Technical Department, which bundles innovation

in the fields of quality assurance and productivity, made a

valuable contribution to enhancing efficiency on our construc-

tion sites. The financial crisis had no major impact on our

order books in Germany in the course of the year. There was

a slight decline in new enquiries towards the end of the year

however.

We substantially increased revenues and earnings on our

worldwide specialist foundation engineering projects. This was

mainly down to some outstanding contracts acquired by a

number of our subsidiaries. Capacities of all in-house drilling

rigs and cutters were fully utilized throughout the year. With a

few exceptions, the effects of the financial crisis were not felt

until the end of the year in the countries where Bauer operates.

In Canada, a large cut-off wall project for oil giant Shell was

begun, with work scheduled for completion in 2009. Our sub-

sidiary Coastal Caisson in Florida, USA, was well supplied with

foundation work and was also awarded a major contract to

carry out extensive sealing work on the Hoover Dike enclosing

Lake Okeechobee. In the Netherlands, we executed the foun-

Construction Segment

Abu Dhabi: A Bauer BG 40 rotary drilling rig is constructing

foundations for an expressway to link the island of Saadiyat

with the mainland.

>>>

14

dations for a new E.ON power station near Rotterdam. Our

new subsidiary in the UK acquired some good contracts, in-

cluding the foundations for Europe's largest paper mill. By

contrast, the construction market in Ireland collapsed com-

pletely. After an excellent start, our subsidiaries in Eastern

Europe suffered a severe decline in orders over the further

course of the year.

The Bauer companies in the Middle East, especially in Abu

Dhabi – where projects included the 1 km² excavation pit for

the new IPIC corporate headquarters – substantially increased

revenues and earnings. Our subsidiary in Egypt was focused

primarily on specialist foundation engineering works for the

Cairo Metro. A number of interesting projects were also carried

out in Lebanon, Saudi Arabia, Jordan and Turkey.

In Africa, our subsidiaries in Angola and Algeria acquired some

good contracts in the second half of the year. Activities in

Sudan were completed.

In Australia, we successfully carried out cut-off wall works as

part of the project to raise the Hinze Dam and so expand the

reservoir capacity. In Indonesia, earnings were improved in the

second half of the year in particular. The companies in

Malaysia, Singapore, the Philippines and Vietnam were consis-

tently occupied all year round and contributed to the healthy

level of earnings generated.

Our subsidiary Schachtbau Nordhausen in Thuringia, eastern

Germany, maintained its positive growth of the previous year,

with increases in both sales and earnings. The Civil Engineer-

ing, Mining, Reconstruction and Environmental Technology

divisions assigned to the Construction segment took the op-

portunity to demonstrate their high level of technical skills and

know-how on many projects in Germany and for the first time

also in the Middle East. Projects completed included the

307-metre long pre-stressed concrete Rhintal bridge. On the

Schnettker bridge in Dortmund, a highly complex composite

steel road bridge, the first lane was opened up to traffic. At the

Brisbane: Water for the next 50 years – BAUER Australia is working on raising the Hinze Dam, constructing an 840-millimetre thick and

up to 50-metre deep two-phase cut-off wall.>>

>

Munich: For the "Pasing Arcaden" development of mfi Management für Immobilen AG, Essen, Bauer constructed the 300-metre long,

60-metre wide and 12-metre deep excavation pit with piles, MIP and soldier pile walling.

Airrail Center at Frankfurt Airport, a complex steel structure

was installed to take additional loads from the planned five-

storey building being constructed on top of it. The Mining

division opened up a pit for subsequent limestone quarrying

by the Märker Kalkwerke corporation in Blaustein, Swabia

(southern Germany). In the Environmental Technology division,

the Reinstädt biogas plant was handed over to the customer

as a turnkey installation, and outfitting of the Dortmund-

Deusen sewage treatment plant was completed. The new

Schachtbau Nordhausen branch office in Abu Dhabi has al-

ready established itself as a reliable civil engineering partner

in the Emirates.

SPESA Spezialbau und Sanierung enhanced its position in

Germany with works including a number of highly challenging

projects in the areas of monument preservation and concrete

remediation. SPESA recently also began operating in the Mid-

dle East with its acquisition of the contract to renovate the

steel-reinforced concrete frame of the Sea Water Cooling

Towers in Kuwait. Extensive remediation work was carried out

on the Theater tunnel in Frankfurt and on the Schiede tunnel

in Limburg as part of consortia.

After a decade of recession in the construction industry –

especially in Germany – we have, over the last two years,

succeeded in recovering healthy levels of capacity utilization

and returning to profit, a feat which is attributable to improved

market conditions and the flexibility of our organization. In the

coming years, trends on global construction markets in our

field of operations will be marked in particular by declines in

industrial and commercial construction activity. The economic

recovery programmes recently announced by some govern-

ments and the resultant infrastructure projects initiated will

compensate for this trend in many countries. In most of our

markets we generally see good opportunities to utilize our

capacities based on profitable contracts.

Construction Segment

>>

>

Equipment Segment

Our Equipment segment once again posted a record year in

2008, successfully maintaining its outstanding market posi-

tion. Signs of more difficult conditions to come emerged only

in the last quarter. Major factors in our increased sales and

earnings were the new developments launched in 2007 –

at the world's largest construction machinery fair, Bauma in

Munich – which have proved extremely successful on the

market. Our product portfolio and technological edge once

again safeguarded our position as market leader and main-

tained stable market shares in 2008. Sales were increased

in virtually all segments of the global market over the year.

Especially strong growth was recorded in Germany, Australia

and Eastern Europe. Pleasingly, sales in the Middle East

were sustained at a very high level. Despite early signs of

a decline in demand for specialist foundation engineering

equipment as in other sectors, the current levels of orders

in hand have enabled us to make a good start to 2009.

Our independently operating subsidiaries also achieved sub-

stantial increases in sales worldwide. RTG Rammtechnik per-

formed outstandingly well, lifting its sales by a third. Our new

Turkish subsidiary based in Ankara, which began operations

in the year under review, made an excellent start and will

show a profit in its very first year. The company specializes in

the manufacture of double-walled drill casings and has to

hold its own on a highly competitive market.

Platanos: Many specialist foundation engineering

companies all over the world rely on tried and proven

Bauer technology – including our customer Michaniki,

here constructing the Corinth–Patras railway line.

>>

KLEMM and Eurodrill based in Drolshagen, western Germany,

which specialize in small-diameter drilling rigs and drive units

respectively, again delivered outstanding sales and earnings

performance in 2008. The product range was expanded

further and the workshops upgraded to make production

processes even more efficient. MAT Mischanlagentechnik

GmbH in the Allgäu region of southern Germany likewise saw

very positive growth. Our well drilling rig unit PRAKLA based

in Peine near Hanover substantially increased its production

volumes, selling a large number of machines to the Chinese

market.

In the Far East, Bauer Technologies Far East, the Singapore-

based holding company for all our subsidiaries in the region,

had a highly successful year. Alongside our Chinese plants in

Tianjin and Shanghai, which massively increased their produc-

tion, our Singapore operation in the repair and marketing of

new and used equipment for the Asian region was also very

successful.

The facility at Kurgan in Siberia, which assembles the MBG 12

and MBG 24 drilling rigs, likewise increased its production by

a double-digit percentage.

Our US unit Pileco in Houston, Texas, held its own in a difficult

market, with sales holding up around the previous year's level.

At the facility in Conroe, Texas, the assembly of KLEMM an-

chor drilling rigs and BAUER heavy-duty rotary drilling rigs and

the production of drilling tools was successfully started. This

success fills us with confidence that our decision to continue

building a new production facility in the USA was the right one.

The plant is scheduled for completion in the course of 2009

and in the first phase will provide well over 100 jobs.

The extension of plant facilities at Schrobenhausen, Aresing,

Edelshausen and Nordhausen in Germany begun in 2007 and

2008 has been largely completed. The Edelshausen plant

started production of welding components at the end of 2008.

A key focus of development work during the year under review

was on the TBA 200 and TBA 300 deep-level drilling rigs.

These rigs, capable of drilling several thousand metres down,

will open up new markets for us in the oil and gas exploration

and deep-level geothermal energy sectors. The newly devel-

oped Bauer MC 64 and MC 128 base carrier units for spe-

cialist foundation engineering applications represent a sound

addition to this range of BAUER specialist equipment.

Despite the difficult global economic situation, we regard our-

selves as being well equipped to face the challenges of the

future. Our state-of-the-art production facilities, which will en-

able us to improve productivity substantially based on the in-

vestments we have made, our innovative, systematic product

range and our highly motivated staff all over the world provide

us with a sound foundation to retain our position as market

leader in the long term.

Equipment Segment

18

New releases on show: At the annual in-house exhibition held in front of its head office, the BAUER Group presents the latest develop-

ments from the last year's production.

>>>

Resources Segment

The BAUER Resources segment, specializing in products and

services in the fields of water, energy, minerals and the envi-

ronment, now encompasses 23 single companies. Operations

are carried out in three divisions.

MATERIALS DIVISION

The Materials division develops, manufactures and markets

materials for the processing of drinking water as well as sup-

plying materials for the engineering of drinking water and de-

watering wells and for close-to-the-surface geothermal energy

recovery. The extensive product range is continually being ex-

panded and updated to the latest state of the art. The current

Economy range responds to all demands in terms of cost-

effective operation, while the Premium range meets the very

highest quality standards. Production is based at Peine,

Nordhausen, Luckau and Renchen in Germany and at Lodz in

Poland. An expansion of the product range and increased sales

will be generated by the newly founded GWE Pakistan and by

the acquisition of a 60 percent share in the GF-Tec corporation

in the field of polyethylene and specialist polyethylene products.

BAUER Resources holds a 51 percent share in GWE Pakistan.

A facility housing two polyethylene extruders is currently under

construction at Gazoon Amazai in northern Pakistan. Production

is scheduled to start in autumn 2009.

Lesotho: Bauer Technologies South Africa is utilizing internal

know-how and relying in its mining operations on the capabil-

ities of a RB 40 from Group subsidiary Prakla.

>>

The companies affiliated to GWE pumpenboese increased their

revenues both in Germany and internationally. The sales and

earnings of SBF-HAGUSTA GmbH were below expectations

because of its weak international business.

The Materials division worked on some 80 improvement proj-

ects relating to product development, manufacturing and lo-

gistics, some of which offered major potential for optimization.

The rising trend in worldwide demand for drinking water has

meant that no negative effects have yet been felt from the

downturn in the global economy.

EXPLORATION AND MINING DIVISION

The mining and exploration services offered by the division in-

clude exploratory drilling of all kinds, from small diameters up

to 2.5 metres, as well as production bores for water extraction

and groundwater control. In future operations will be expanded

to cover the oil and gas sector. Dewatering wells and cut-off

walls for open-cast mines also form part of the division's

portfolio, as does the ongoing development of drilling and

high-pressure jet methods for the mining of minerals such as

diamonds, uranium and coal.

In contrast to the other sectors in which Resources operates,

the mining industry reacted surprisingly sharply to the down-

turn in the global economy – as illustrated by the dramatic fall

in commodity prices. However, based on our niche strategy we

expect to be in a position to outperform the general industry

trend. The expansion of the operations of our subsidiary BAUER

Technologies South Africa into West Africa, with projects in

Ghana and Sierra Leone, ensures a healthy level of capacity

utilization for 2009. BAUER Resources Canada enjoyed success

and generated healthy earnings from diamond exploration to-

gether with consortium partners, and is currently working on an

interesting project involving uranium mining by a high-pressure

jet method. Our new subsidiary in Australia carried out its first

iron ore and diamond exploration contracts. The acquisition of

Montpellier: As here for the French city, products from our

Group subsidiary GWE are employed all over the world in

water recovery and distribution.

Swiss company Foralith brought a highly re nowned business

with widely respected expertise in specialist and deep-level

drilling into the Group. This know-how will enable us to

strengthen our subsidiaries in the field of specialist and direc-

tional drilling and to enter the field of deep-level drilling and

deep-level geothermal energy recovery, using the TBA 300

deep-level drilling rig developed by BAUER Maschinen.

ENVIRONMENT DIVISION

The Environment division operates in the remediation of con-

taminated sites, the treatment of industrial process fluids and

waste water, the treatment of drinking water and the construc-

tion of drinking water and sewage treatment plants. BAUER

Umwelt GmbH, operating in Germany, suffered from weak

demand and fluctuating capacity utilization in 2008, which re-

sulted in unsatisfactory levels of sales and earnings. The situa-

tion improved in the fourth quarter, and prospects for 2009

are bright. The reorganization of FWS Filter- und Wasser-

technik GmbH delivered positive results, with sales and earn-

ings performance above expectations. A more professional

structuring of marketing and sales activities and leaner pro-

duction were factors in that success. The launch of ultrafiltra-

tion systems for drinking water treatment was implemented

according to plan. The recently created subsidiaries in the UK,

Italy, Hungary and the United Arab Emirates have established

themselves successfully, and positive growth is expected from

them. In Oman, a major contract was acquired marking the

company's first step into the oil industry: BAUER Nimr Oman –

a joint venture with two local partners – will over the next two

years construct a gigantic reed-bed sewage treatment plant to

purify 45,000 m³ of waste water per day from oil processing

and subsequently operate the plant for a period of 20 years.

Although the creation of the Resources segment – with the

establishment of new companies and acquisitions of others,

and all the integration of differing organizational forms which

this entails – is still tying up significant management re-

sources, it has laid the foundations for a successful future.

We thus see great potential for this segment to be of major

benefit to the Group in the coming years.

23

Kirchzell: BAUER Resources subsidiary FWS modernized and expanded the capacity of the groundwater supply to the market town in

Lower Franconia, southern Germany.>>

>

FINANCIAL CRISIS OVERSHADOWS MARKETS IN 2008

The financial crisis which in 2007 had been confined to the US

mortgage market developed into a worldwide economic crisis

in 2008. The resultant global downturn brought about dramatic

falls on stock markets. Having stood at 8,067 points at the be-

ginning of 2008, Germany's DAX index lost more than 40 per-

cent of its value in the course of the year, the MDAX dropped

by more than 43 percent, and the SDAX by 46 percent.

Right from the start of the year, fears of a recession in the USA,

write-offs of billions of dollars in the financial sector and a

number of major company profit warnings caused markets

to slide, with the DAX's 15 percent fall in January marking its

worst start in 40 years. After a brief recovery at the start of the

second quarter, record oil prices and forecasts of rising infla-

tion depressed markets once again. The collapse of US invest-

ment bank Lehman Brothers in September then triggered an-

other massive slide, with some stocks dropping in the fourth

quarter to less than 50 percent of their year opening values

and recession levels being reached in the economy. In Novem-

ber the DAX reached its low for the year of 4,127 points. The

S&P500 dropped at one stage to its lowest level since 1997.

At the year-end, falling interest rates and hopes of government

stimulus packages delivered a slight upturn. The DAX closed at

4,810 points, well down on its half-year standing of 6,418.

BAUER SHARE PRICE VOLATILE

In these extremely difficult conditions, the Bauer share held up

very well against the generally negative market trend in the

first half of the year. The share price reflected the company's

solid performance and after a relatively weak first quarter

steadily gained in value. By early June the share had climbed

to its all-time high of EUR 70.12, closing the first half-year at

EUR 61.32 – up 26.4 percent on the start of the year. The

SDAX, on which Bauer was listed at the time, fell 18.3 percent

in the first six months of the year.

In the second half of the year the BAUER share was then also

dragged into the market downturn. Even though the full-year

forecast presented along with the third-quarter report re-

affirmed the company's earlier confidence, the share came

under enormous pressure and by the end of the third quarter

was down 26.8 percent at EUR 35.50. Even September's

uprating from the SDAX to the MDAX – the index of German

medium-sized companies from classic sectors just below the

DAX – failed to boost the company's share price. Over the fol-

lowing weeks the stock continued to fall, and on November 21

reached its low for the year of EUR 17.64 – a disappointing

development for which there was no fundamental justification

in terms of the company's performance. The share price re-

covered slightly again by the year-end, closing at EUR 29.45.

The BAUER Share

24

DEVELOPMENT OF THE BAUER SHARE PRICE IN 2008

in %Bauer DAX MDAX SDAX

80

60

40

20

0

(20)

(40)

(60)

(80)

01.01.2008 23.04.2008 15.08.2008 07.12.2008 31.03.2009

31.12.2008

SHARE INFORMATIONOver the course of the year the Bauer share lost 39.3 percent

of its value, reflecting the trends on the DAX and MDAX.

CONTINUOUS INVESTOR RELATIONS WORK

The Management Board and the Investor Relations department

once again held numerous events and conducted a host of

measures in 2008 to provide the capital market and our com-

pany's shareholders with information in the most transparent,

timely and objective manner possible. At more than 250 one-

on-one and group meetings with institutional investors, analysts

and media representatives – both at our head office in Schro -

ben hausen and at road shows and conferences in key financial

centres in Europe and the USA – the Management Board out-

lined the company's business model and provided updates on

performance trends. Dialogue with private investors was ac-

tively pursued at dedicated shareholder forums. Our company

website provides online access to our financial reports as well

as presentations and other publications to download. The num-

ber of analysts regularly reporting on Bauer increased from

seven to 13 in 2008. The current list of the organizations in

question and their appraisals are published on our website.

2008 again saw over 600 shareholders take up our invitation

to attend the company's Annual General Meeting, highlighting

once again the event's key role as a forum for interchange

with our shareholders.

DIVIDEND POLICY

Bauer's dividend policy is founded on the principles of yield,

continuity and safeguarding the equity base. At the same time,

we seek to ensure that our shareholders participate in the

success of the business. In 2008 our outstanding profitability

enabled us to increase our equity ratio from 34.1 percent at

the end of 2007 to 35.8 percent by the year-end. This means

that we are once again in a position to maintain the dividend

payment to our shareholders at a stable level this year without

endangering our strategic growth targets in an increasingly

challenging market.

In order to establish continuity of dividend returns, the

Management Board and Supervisory Board will propose an

unchanged dividend of EUR 1.00 per share to the Annual

General Meeting on June 25, 2009.

25

ISIN DE0005168108

WKN 516810

Trading symbol B5A

Trading segment Official market, Frankfurt Stock Exchange

Share indices MDAX, HDAX, CDAX, GEX, Classic All Share, Prime All Share

Share category No-nominal-value individual bearer shares

Share capital EUR 73,001,420.45

Shareholderstructure

Bauer family 48.19 %Free float 51.81 %

KEY FIGURES 2006 2007 2008

Number of shares 17,131,000 17,131,000 17,131,000

Earnings per share EUR 2.17 EUR 4.23 EUR 6.09

Dividend per share EUR 0.50 EUR 1.00 EUR 1.00*

Year closing price EUR 32.30 EUR 48.50 EUR 29.45

Year high EUR 32.30 EUR 67.02 EUR 70.12

Year low EUR 16.60 EUR 32.00 EUR 17.64

Market capitalization at year-end EUR 553,331,300 EUR 830,853,500 EUR 504,507,950

Average trading volume (number of shares) 42,200 84,400 89,300

* Subject to approval of AGM on June 25, 2009

Corporate Governance Report

Characteristic features of good corporate governance are efficient

cooperation in a spirit of mutual trust and confidence between

the Management Board and the Supervisory Board, respect for

shareholders' interests, and openness and transparency in cor-

porate communications. As a company based in the Federal

Republic of Germany, BAUER AG is subject in this respect to the

requirements of German law, in particular the laws governing

stock corporations, corporate co-determination and the capital

markets, as well as by the recommendations set out in the Ger-

man Corporate Governance Code. Moreover, the company's Arti-

cles of Association, the rules of procedure governing the Supervi-

sory Board and its subcommittees and those governing the work

of the Management Board also lay down the basic structures of

collaboration between the executive bodies of the company.

The values and principles underlying good, responsible corpo-

rate governance and the ethical and moral standards governing

the conduct of the member companies of the BAUER Group and

their employees are also embodied in the internal policies and

guidelines set out in the Corporate Management Manual. The

Corporate Management Manual is the central instrument of gov-

ernance and also forms the basis for the Group's compliance

with legal and regulatory requirements on national and inter-

national markets.

An appropriate system of risk management and of internal con-

trols is established within the company. The Management Board

regularly updates the Supervisory Board on existing risk and risk

trends. The essential features of the risk management and con-

trol system are summarized in the Opportunity and Risk Report

forming part of the Group Management Report. In the export

field, the process of automated cross-checking of all personal

and company addresses against the sanction lists established

as part of anti-terror legislation was improved in the year under

review by the implementation of a new software solution.

DUAL MANAGEMENT SYSTEM

The management activities of the Management Board are gov-

erned by the system of dual management comprising the Manage-

ment Board and the Supervisory Board. The Management Board

manages the company under its own responsibility. The Chairman

of the Management Board coordinates the work of the Manage-

ment Board members. Management is based on close cooperation

in a spirit of mutual trust and confidence between the Manage-

ment Board and the Supervisory Board, and on a continuous flow

of information relating to a wide range of matters.

The members of the Management Board are obligated immedi-

ately to disclose to the Supervisory Board any conflicts of interest

as and when they arise. The members of the Management Board

may only accept secondary posts, in particular membership of

supervisory boards of companies outside the Group, with the prior

consent of the Supervisory Board's Presidial and Personnel Com-

mittee. No conflicts of interest occurred in the year under review.

The Supervisory Board consists of 12 members, of whom six repre-

sent the employees and six are elected by the Annual General

Meeting to represent the shareholders. The Supervisory Board ap-

points, supervises and advises the Management Board in manag-

ing the company's business, and participates directly in decisions

of fundamental significance to the company. The Chairman of the

Supervisory Board coordinates the work of the Supervisory Board.

At regular intervals, the Supervisory Board monitors the course of

business, corporate planning and strategy, the risk management

system and the company's accounts, as well as providing the

Management Board with advice and support. Key Management

Board decisions require the consent of the Supervisory Board. The

Supervisory Board has laid down rules of procedure governing the

work of the Management Board – in particular with regard to the

portfolios of individual Management Board members, the matters

which must be submitted to the full Management Board for its at-

tention and the passing of resolutions by the Management Board.

The Chairman of the Supervisory Board maintains regular contact

with the Management Board, consulting with it on matters of strat-

egy, the course of business and corporate risk management.

JOINT REPORT BY THE MANAGEMENT BOARD AND SUPERVISORY BOARD OF BAUER AG ON CORPORATE GOVERNANCE

Schwäbisch Hall: Bauer executed the excavation pit for the new Kocher quarter, a shopping complex with a bank, apartments and underground parking.

27

Corporate Governance Report

28

The annual efficiency audit of the Supervisory Board conducted

in the year under review identified no conflicts of interest among

members of the Supervisory Board of BAUER AG.

In accordance with the rules of procedure governing the Supervi-

sory Board, the following Supervisory Board subcommittees exist:

The Presidial and Personnel Committee comprises the Chairman

of the Supervisory Board as well as one Supervisory Board

member elected by the shareholder representatives and one

by the employee representatives respectively. Its duties include

preliminary consultations relating to personnel decisions of the

Supervisory Board, and it is also responsible for the creation,

amendment and termination of contracts of employment for the

members of the Management Board. It also concerns itself with

matters relating to corporate governance.

The Audit Committee comprises three members. Pursuant to the

requirements of the German Corporate Governance Code, its

chairman possesses specific knowledge and experience in the

application of accounting policies and internal control procedures,

and is neither a former member of the company's Management

Board nor the Chairman of the Supervisory Board. The Audit Com-

mittee prepares the proposal of the Supervisory Board to the An-

nual General Meeting concerning the appointment of auditors. It

undertakes a preliminary review of the annual financial statements

of the parent company and the consolidated financial statements

of the Group together with the respective management reports, as

well as preparing the proposal on appropriation of net earnings

available for distribution and consulting on the audit reports with

the auditors. It also reviews the quarterly financial statements.

The Nominations Committee comprises three shareholder-

representative members of the Supervisory Board. The task of

the Nominations Committee is to submit to the Supervisory

Board proposals of suitable candidates to be put forward to the

Annual General Meeting for election to the Supervisory Board.

The Mediation Committee, constituted pursuant to the German

Co-determination Act, comprises two shareholder-representative

and two employee-representative members respectively. It sub-

mits to the Supervisory Board proposals for the appointment of

Management Board members if the required majority of two thirds

of the votes of the Supervisory Board members is not attained in

the first round of voting on a candidate.

SHAREHOLDERS AND TRANSPARENCY

The shareholders assert their rights at the Annual General Meet-

ing, where they also exercise their voting rights. Each share entails

one vote. The shareholders are assisted in exercising their voting

rights by the facility to assign power of attorney to nominees and

by the appointment of a company proxy to vote in accordance with

the shareholders' instructions.

No company share option schemes or similar stock incentive pro-

grammes existed during the past financial year either for the em-

ployees of the BAUER Group or for the members of the company's

Management Board and Supervisory Board.

The company provides its shareholders, shareholders' associations,

financial analysts, the media and all interested parties with regular

and timely information relating to the position of the company and

in respect of material changes to the business. Extensive documen-

tation and information resources as well as a financial calendar are

provided on the company's website. Four times a year, BAUER AG

publishes updates on the course of its business in the form of quar-

terly reports, the half-year interim report and the annual financial

statements. Matters influencing the company's share price are

publicized in the form of ad-hoc reports. The preliminary documen-

tation in advance of the Annual General Meeting is also made avail-

able to our shareholders through the company's website.

SHAREHOLDINGS OF THE MANAGEMENT BOARD AND

SUPERVISORY BOARD

As of December 31, 2008, members of the Management Board

during the financial year held a total of 2,678,166 (previous year:

2,675,215) shares in BAUER AG, corresponding to 15.63 percent

(previous year: 15.62 percent) of the company's share capital.

At the same date, members of the Supervisory Board during the

financial year held a total of 2,167,687 (previous year: 2,158,201)

Bauer shares, corresponding to 12.65 percent (previous year:

12.60 percent) of the company's share capital.

Corporate Governance Report

29

On its website, BAUER AG advises when members of the Man-

agement Board and the Supervisory Board or related parties

have acquired or disposed of shares in the company or associ-

ated derivatives and have disclosed the fact to BAUER AG in

accordance with legal requirements. A list of the individual noti-

fications in printed form is also available free of charge from

the BAUER AG Investor Relations department.

DECLARATION OF CONFORMITY

The Management Board and Supervisory Board of BAUER AG

review the company's conformity to the recommendations and

suggestions set out in the German Corporate Governance Code

on a yearly basis, and at their meetings on December 11, 2008

they passed a declaration of conformity pursuant to Section 161

of the German Stock Corporation Act (AktG) which was subse-

quently published on the BAUER AG website.

The company has complied with, and currently complies with,

the recommendations of the German Government Commission

relating to the German Corporate Governance Code as published

by the German Federal Ministry of Justice in the official section

of the electronic version of the German Federal Gazette ("Bun-

desanzeiger"), with the following exceptions.

The monetary remuneration paid to the members of the Manage-

ment Board comprises fixed and variable elements. Contrary to

Article 4.2.3 and Article 4.2.5, shares in the company with vest-

ing periods extending over a number of years, share options and

comparable schemes will not be awarded as elements of variable

remuneration. The variable elements of remuneration paid to the

members of the Management Board are based on the profit

achieved by the company, also taking into account the develop-

ment of the share price. The Supervisory Board has no intention

at present of establishing a closer link between the remuneration

paid to members of the Management Board and the development

of the share price, and thus to market fluctuations.

Contrary to Articles 5.1.2 and 5.4.1 of the Corporate Governance

Code, no age limit is specified for members of the Management

Board or Supervisory Board. An overly regimented approach to

these matters would hinder the necessarily individual decisions

taken with regard to the appointment of members of the Manage-

ment Board and Supervisory Board. Decision-making competency

in these matters is entrusted to the Annual General Meeting and

the Supervisory Board in each individual case, so we do not con-

sider it necessary to establish a hard-and-fast rule in this respect.

Contrary to Article 5.4.6, Supervisory Board members receive only

a fixed amount of remuneration, and no performance-related com-

ponent. The remuneration paid to the Supervisory Board is laid

down by the Annual General Meeting in the Articles of Association

of the company, with no provision for any profit-related element.

Contrary to Article 7.1.2, the consolidated financial statements at

December 31, 2007 were made public within 113 days rather

than 90 days of the end of the financial year. The goal of achieving

greater efficiency of corporate accounting processes was pursued

once again in the year under review by further standardization of

the software systems which form the basis of accounting proce-

dures within the BAUER Group.

Furthermore, BAUER Aktiengesellschaft already conforms largely

to the additional suggestions of the German Government Com-

mission on the Corporate Governance Code.

Though the company does not currently provide shareholders with

the facility to view the Annual General Meeting over the internet, it

is attentively monitoring the legislative procedures aimed at imple-

menting the EU Shareholder Rights Directive which seeks to place

the online participation of shareholders in the company's Annual

General Meeting and the facility for postal voting on a legal footing.

Outdated declarations of conformity to the Code will remain acces-

sible on the company's website for a period of five years.

REMUNERATION REPORT

Explanatory notes on the remuneration paid to the Management

Board and Supervisory Board are set out in the Remuneration

Report forming part of the Group Management Report on pages

41 to 43 of this Annual Report. The Remuneration Report is in-

cluded in the present Corporate Governance Report, and is to be

seen as a component part of it.

In financial 2008 the Supervisory Board fulfilled the tasks in-

cumbent upon it in accordance with the law, the company's

Articles of Association and the rules of procedure, and gave

detailed consideration to the future prospects of the company.

We routinely provided the Management Board with advice

and support on the conduct of business, and monitored its

management activities.

At our meetings, the Management Board provided us with de-

tailed, timely and comprehensive written and verbal reports on

the course of business, the position of the parent company

and the Group (including the risk position and matters of risk

management) as well as on corporate strategy and planning.

The Management Board also provided the Supervisory Board

with regular, timely and comprehensive reports outside of the

meetings. Between the meetings, the Management Board

submitted written reports on all important business transac-

tions as well as on trends in key financial indicators of the

Group and the parent company. The Chairman of the Super-

visory Board also remained in regular contact with the Chair-

man of the Management Board outside of the Supervisory

Board meetings, and obtained regular updates on the state

of business, including in the course of a number of personal

visits.

The Supervisory Board participated directly in decisions of

fundamental significance to the company. The Management

Board consulted us in defining the company's strategy.

CHANGES TO THE SUPERVISORY BOARD

In keeping with the requirements of parity with regard to

German co-determination law, the Supervisory Board consists

of twelve members – six representing the company's share-

holders and six representing the employees. Wilken Freiherr

von Hodenberg resigned for personal reasons from his posi-

tion as a shareholder-representative member of the Supervi-

sory Board and as a member of the Audit Committee of the

Supervisory Board with effect from the end of the company's

Ordinary Annual General Meeting held on June 26, 2008.

At the proposal of the Supervisory Board, the Annual General

Meeting of June 26, 2008 elected Professor Dr. Manfred

Nußbaumer to succeed him on the Supervisory Board.

Professor Dr. Nuß baumer was also elected by the Supervisory

Board to serve on its Audit Committee.

MAIN FOCUS OF CONSULTATIONS IN SUPERVISORY

BOARD MEETINGS

Four plenary meetings of the Supervisory Board were held in

the year under review. In preparation for each meeting, those

attending were furnished by the Management Board with a

comprehensive and detailed preliminary report setting out

current business developments, financial trends and the latest

corporate planning. At the meetings, the written reports were

expanded upon by the Management Board and scrutinized

by the Supervisory Board members. The sales, earnings and

activity levels of the individual Group segments, the financial

position and major capital investment projects were the sub-

ject of routine consultations in the plenary meetings.

Except for Professor Dr. Nußbaumer, who was not elected to

the Supervisory Board until the middle of the year and was

only able to attend one meeting of the full Supervisory Board

in the year under review, all meetings were outstandingly well

attended, with all remaining members of the Supervisory

Board attending all of the Supervisory Board's meetings

during their period of office in financial 2008.

At the annual accounts review meeting held on April 18,

2008, the main items discussed were the company's 2007

annual financial statements, the consolidated financial state-

ments of the Group and the associated management reports,

taking into due consideration the report from the Audit Com-

mittee and the proposal of the Management Board with

regard to the appropriation of earnings. Other matters dealt

with at the meeting included discussions with the Manage-

Report of the Supervisory Board

31

Panama: The decision taken in 2004 to expand the Panama Canal has opened up many opportunities, both on the Canal itself and at

numerous locks and port installations.

ment Board regarding investments in property, plant and

equipment, the question of bonus payments to members of

the Management Board and preparation of the resolutions

to be put to the company's upcoming Annual General Meeting

– in particular the election of a new member of the Super-

visory Board.

At the meeting held on June 25, 2008, the extension of the

period of office of Hartmut Beutler, member of the Manage-

ment Board responsible for Finance, for a further five years

was confirmed following preliminary consultations in the Pre-

sidial and Personnel Committee. The development of business

relative to the performance of major competitors, the impact

of the real estate crisis on economic growth and investment in

company acquisitions were discussed with the Management

Board.

The main topics covered at the meeting held on Septem-

ber 26, 2008 were a review of the Group's financial position,

the investments in expansion of facilities against the back-

ground of the financial market crisis, medium-term corporate

financial planning and risk management. The financial review

established that the Management Board had been prudent in

its response to the financial market crisis. The Supervisory

Board also participated directly in the decisions relating to the

expansion of the Resources segment.

At the meeting held on December 11, 2008, the main focus

of reports and consultations was on planning for financial

2009 and the expected impact of the financial market crisis

on global economic development and on that of the BAUER

Group, as well as the liquidity situation in the Group. At the

suggestion of the Presidial and Personnel Committee, the

remuneration system for the Management Board, including

the fundamental contract provisions, was reviewed and a res-

olution passed. A self-evaluation was also carried out in order

to assess the efficiency of the Supervisory Board's activities

in accordance with Article 5.6 of the German Corporate Gov-

ernance Code. No conflicts of interest of Supervisory Board

members were identified. On the same day, the Management

Board and Supervisory Board issued their 2008 declaration of

conformity to the German Corporate Governance Code, which

was subsequently published on the company's website. The

company once again complied with most of the recommenda-

tions and suggestions set out in the German Corporate Gover-

nance Code.

WORK ON THE SUBCOMMITTEES

In the 2008 financial year there were four subcommittees of

the Supervisory Board. The Mediation Committee was not

required to convene in fulfilment of its assigned function.

The Nominations Committee was convened in order to pre-

pare the election of a new member to the Supervisory Board

at the Annual General Meeting on June 26, 2008 and to pro-

pose a successor to the retiring member, Freiherr Wilken von

Hodenberg.

The Presidial and Personnel Committee concerns itself prima-

rily with the creation, amendment and termination of contracts

of employment for the members of the Management Board,

including defining the structure and level of their remunera-

tion. The members convened at two meetings, at which con-

sideration was given to personnel-related matters, the exten-

sion of the contract of Management Board member Hartmut

Beutler, and the level and structure of remuneration paid to

the members of the Management Board and to senior man-

agement within the Group.

In the year under review, the Audit Committee held three tele-

conferences and one meeting, also attended by the auditors,

relating to the auditing of the quarterly reports, the half-year

interim report and the annual financial statements of the par-

ent company and consolidated financial statements of the

Group. It also scrutinized the Management Board's proposal

regarding the appropriation of earnings. The Audit Committee

also made preparations for the appointment of the auditors for

financial 2009, including scrutinizing their independence.

The chairmen of the various subcommittees submitted

regular reports on their work to the plenary Supervisory

Board meetings.

Report of the Supervisory Board

32

AUDITING OF ANNUAL AND CONSOLIDATED FINANCIAL

STATEMENTS

The annual financial statements of BAUER AG to December

31, 2008 and the consolidated financial statements of the

Group, as well as the respective management reports, includ-

ing the bookkeeping, were audited by the auditors elected by

the Annual General Meeting and duly appointed by the Super-

visory Board, PricewaterhouseCoopers Aktiengesellschaft and

Wirtschaftsprüfungsgesellschaft, Stuttgart. The accounts were

certified by the auditors without reservation.

The audit documentation and reports from the auditors were

furnished to us in good time for our scrutiny. The auditors at-

tended the relevant meetings of the Audit Committee as well

as the annual accounts review meeting of the plenary Super-

visory Board.

The Audit Committee consulted intensively with the auditors

and subjected the audit documentation and reports to thor-

ough scrutiny. The Committee reported on its review to the

Supervisory Board.

Following our own review of the annual financial statements of

the parent company and the consolidated financial statements

of the Group, together with the respective management re-

ports, we duly noted the auditors' reports and concurred with

their findings. No objections were raised. The financial state-

ments of BAUER AG and the consolidated financial statements

of the Group were approved by the Supervisory Board at its

meeting on April 17, 2009. The annual financial statements of

BAUER AG are thereby confirmed. We concur with the content

of the parent company and consolidated Group management

reports.

The proposal of the Management Board regarding the appro-

priation of net profit available for distribution was discussed in

detail with the Management Board by the Audit Committee.

Following its own detailed scrutiny, with regard to the liquidity

of the company and its financial planning, and giving due con-

sideration to the interests of the shareholders, the Supervisory

Board ultimately concurred with the proposal of the Manage-

ment Board regarding the appropriation of net profit available

for distribution.

I would like to express my personal thanks to retiring Super-

visory Board member Wilken Freiherr von Hodenberg for his

hard work and constructive contribution to the Supervisory

Board and the subcommittee on which he served. I would

also, on behalf of the Supervisory Board, like to thank the

Management Board, all the employees of the company and

the employees' representatives for their contribution to what

has been a very successful year for the BAUER Group.

Schrobenhausen, April 17, 2009

The Supervisory Board

Dr. Klaus Reinhardt

Chairman of the Supervisory Board

Report of the Supervisory Board

33

© F

rank

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reas

Lön

nig

2008 was one of the blackest years the global economy has

ever seen. A subprime debt crisis turned into a financial crisis

of a scale which none of the experts could have foreseen

when the year began. The year ended with the election of a

new US President, Barack Obama – a man in whom many

place great faith, hoping that he will deliver the essential

change needed after the dark days of the George W. Bush

administration. The subprime crisis of course posed a threat

to global financial systems, and thus to the real economy of

countries all over the world. It appears that securitized mort-

gages on housebuilding projects totalled some 3 trillion US

dollars – an enormous sum. If the crisis had resulted in one

third of this amount being lost, the global economy would

have had to absorb a loss of around 1 trillion dollars.

Considering that German reunification cost around twice that,

it was doubtless correct to assume that the world as a whole

could have been able to absorb the loss arising from the sub-

prime crisis without dramatic collapse, and without the need

for extensive economic stimulus packages.

As we now know, things turned out much worse. We saw with

horror at the beginning of the last quarter of 2008 how the

US administration allowed a major investment bank – Lehman

Brothers – to fail. It was clear based on the structure of the

securitized assets that it would be the banks who would have

to bear most of the losses from the subprime crisis. And so it

was evident that the very existence of some banks would be

threatened. Even someone with a basic knowledge of eco-

nomics would surely have realized that the failure of such a

major international bank would trigger a domino effect which

would destroy confidence within the financial world, and so

massively reduce the amount of business transacted between

the banks themselves.

And that is just what happened. As a consequence, the im-

pact has been felt by economies all over the world. This im-

pact is now on such a scale that entire industries have suf-

fered catastrophic damage. The only way to limit the damage

to some extent is for many governments to instigate extensive

economic stimulus packages. The chances of the various eco-

nomic sectors depend heavily on the effect of those packages,

and the scale on which they are ultimately implemented.

Many people are asking why the failure of "just" one bank

should have such serious consequences. The reason is rela-

tively simple: in order to conduct their day-to-day business,

banks need to be able to carry out transactions among them-

selves quickly and unbureaucratically. To secure their funds

they rely on the ratings of partner banks. There are virtually

no instruments or insurance policies to secure the outstanding

claims of one bank against another. So if mutual confidence

among banks disappears, this unbureaucratic way of doing

business is no longer viable and financial market mechanisms

break down. The only way to prevent disaster in such a situa-

tion is for the state to provide aid to the banks, enabling them

to do business with each other without increased risk. So the

measures to stabilize the banking industry undertaken in most

countries were entirely appropriate, and were indeed the only

possible way to ensure the survival of the global economic

system.

The question with regard to specific industries and the real

economy as a whole is whether a sound footing has now been

established for positive growth in the future.

Sadly, the answer to that question is on the whole far from

being in the affirmative. There is no doubt that Germany will

be faced by recession in 2009, as will most other countries in

the world. It is doubtful whether those countries still achieving

growth will be able to drive the global economy as a whole to

grow in 2009. In Germany, the decline in the automotive in-

dustry alone is pushing the economy into recession. In view of

the downturn in this sector and others, the prospect of keep-

Group Management Report of BAUER AG,Schrobenhausen, for the 2008 Financial Year

35

Egypt: In the port city of Damietta, a Bauer BG 40 and the new MC 32 crawler crane stand ready to begin work on a bridge over the Nile.

ing the contraction to a level of just two to three percent is

only conceivable based on government economic stimulus

packages. There are no grounds to expect that the recession

will end by 2010 either. It is fortunate that not all industrial

sectors of any given country are dependent on the economic

cycle to the same extent, so there will be some stabilizing

elements. Nonetheless, prospects are certainly not bright.

There is another factor which brings even more uncertainty

when the economy is in a slump: How will people react to the

changes made? Will they turn to radical political parties as in

previous eras, thus posing an additional risk to the democratic

systems of the world's leading economies? Or will the meas-

ured response of politicians and business leaders encourage

the public at large to work with them to build a stable, pros-

perous future? No one can provide a clear answer to such

questions. In view of the fact that problems encountered in

the past were successfully overcome by the concerted efforts

of all those affected, it is our belief that the outcome of our

current troubles will likewise be positive. But we cannot simply

go on as before. Business leaders, major players on the finan-

cial markets and politicians have a particular responsibility in

this respect. Only by acting calmly and confidently will it be

pos-sible to turn things around in the near future – and we

believe that this is what will happen.

Since any forecast right now is subject to a high degree of

uncertainty, we at Bauer have played out a large number of

scenarios and given consideration to how they might impact

on us. Overall we have established that, based on the struc-

ture and global market presence of our business and on our

financial strength, we will be able to safeguard the company's

development even in the event of extreme changes to the eco-

nomic conditions we face. Our planning is founded on a mid-

range view of future prospects. We will set forth this view in

rather more detail in the following.

The financial crisis will lead to a significant downturn in com-

mercial construction and housebuilding both in Germany and

across the world. By contrast, public-sector construction con-

tracts will increase substantially, providing a degree of com-

pensation. The major construction companies still mostly have

healthy levels of orders in hand which they are gradually

working through. Consequently, capacities will still be ade-

quately maintained provided that the economic stimulus pack-

ages take full effect by around the middle of the year. The

economic stimulus packages will be key to developments in

2010. For the wider future thereafter, the prospects are that

the global economy will have picked up once again.

Since our business has very little dependence on house-

building, either in our construction operations or in terms of

our equipment manufacturing, the key factors in our future

growth will be the public-sector and commercial construction

markets. We see our Construction segment as being our most

stable in terms of growth over the coming years. The Equip-

ment segment will see significant declines, especially with

regard to smaller machines. The larger machinery will profit

from the growth in public-sector construction projects. In the

Resources segment, mining operations have been severely

impacted by the crisis. The collapse in commodity prices has

forced mining companies to make radical cuts, which have

resulted in lower demand. In the long term, however, the

prospects are that the mining sector in particular will return

to being a stabilizing factor, since the greatest problem the

world will have to face in future will be the availability of natu-

ral resources. It is to our benefit that we had only just begun

to focus on this sector when the downturn came, so the im-

pact on our business as a whole will be negligible. Prospects

in the environmental technology sector are bright. Sales in

the sector will buck the trend and achieve growth, based on

a very large contract we recently acquired in Arabia to treat

process water from the oil industry. Our environmental opera-

tions overall are progressing positively. We expect to see con-

sistent growth in our engineering materials, relating primarily

to the drawing of water.

In the specialist foundation engineering sector, the market will

be boosted by economic stimulus packages – largely involving

construction projects – being instigated by governments all

over the world. As well as boosting the economy, these pack-

ages are key to the development of infrastructure in many

36

2008 Group Management ReportMACRO-ECONOMIC TREND

2008 Group Management ReportMACRO-ECONOMIC TREND

countries. As reported widely in the media, the public infra-

structure in particular is in a quite neglected condition in many

countries. In the USA, many bridges are in a state of disrepair,

and many dams and dykes are in need of remediation. There

has been a lack of investment in the energy supply sector for

decades, including a failure to construct the necessary new

facilities for the future and to fit out power stations with the

state-of-the-art filter systems they need. The need to restore

infrastructure and so safeguard a healthy economic future is

immense. This depiction of the situation i