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Brief Report on Business Development in Fiscal Year 2016 and the Expectations for 2017

Diehl Holding

We will continue the lifework of Dr. Ing. E.h. Thomas Diehl.

We have all been shocked and deeply affected by the death of Dr. Thomas Diehl. For almost 25 years, he was our company's President and Chief Executive Officer, an engineer and networker, a caring boss. As successor to his father, he decisively shaped and formed the company together with his brothers. The Diehl Group's successful development clearly bears his mark.

However, it is also part of his legacy that the family-owned Diehl company has a future independently of him. By making the company a foundation, Karl Diehl, together with his three sons, had already provided the basis for the company to remain independent and family property in the long term. Years ago, Peter Diehl and Dr. Thomas Diehl initiated the generation change by transferring their shares in the company to their children. The young shareholders accept the responsibility which rests on them now and have begun to play an active part in the company. Immediately after the period of mourning, the children of Dr. Diehl will elect a family branch spokesperson and representative on the Supervisory Board. Thus, there will be no vacuum at the top of the company.

Apart from that, the six members of the fourth family generation are making themselves "fit" for the company in varied ways. Together with Werner Diehl, there are now seven family shareholders who support the company, organized in three family branches, each of them represented on the Supervisory Board, and pull the company's strings – as has been the case until now.

The company's shareholders will decide on a successor. Until then, Mr. Wolfgang Weggen, longstanding Executive Vice President, has assumed the CEO's duties and responsibilities according to the rules of procedure. Mr. Weggen will coordinate and continue the Executive Board's work in the usual manner. Furthermore, the corporate division boards stand for stability and continuity in operating business and continue to manage their corporate divisions with a high degree of autonomy and experience. This guarantees stability and reliability, both internally and to the outside. We will continue to open up new markets, expand our product portfolio and enable business growth also by acquiring new companies, with defence and all other divisions remaining essential parts of our business activities. It is our obligation to continue and further develop the lifework of Dr. Diehl.

The Shareholders will also in the future be supported by highly competent advisers in the Supervisory Board and Advisory Board, who have been closely connected to the Diehl family over many years and each look back on an impressive entrepreneurial career. Thus, our company's bodies are still fully capable of acting.

Forecast sales and income increases were achieved in 2016

In fiscal year 2016, the group achieved sales of € 3,410.2 million, € 301.7 million or 9.7 % more than the previous year. Controls and Aerosystems could each record strong growth, while Metall and Metering were slightly below the previous year’s value. The number of employees increased by 496 persons - i.e. 3 % - to now 16,385 employees. The generated EBIT of € 174.7 million was equivalent to the previous year's figure, including a one-off expenditure item of € 49.1 million (previous year: € 5.6 million) for the complete transfer of the remaining adjustment amount to the accrual for pensions. In the year under review, the group invested a total of € 116 million (previous year: € 116 million). R&D expenses, at € 245.9 million, were below the previous year’s value (€ 264.9 million). This decline was attributable to the Defence Corporate Division which is affected by the currently still stagnant national research and development budget of the German public purchaser.

2017: Growth trend continues

There is some evidence that the positive development of the group will continue and that our corporate divisions will be able to utilize their growth potential in 2017 as well. We therefore aim to achieve corporate sales of € 3.6 billion with a corresponding income increase.