Mahle Metal Leve : DFP - Year 2018

MAHLE Metal Leve S.A.

Financial statements at

December 31, 2018

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DEAR SHAREHOLDERS

In compliance with applicable law and the Company bylaws, the Company's Management submits to you the Management Report and the Financial Statements with the Independent Auditor's Report and the Report of the Supervisory Board for the fiscal year ended December 31, 2018.

1Management's Comments

The year 2018 started with expectations of a new political and macroeconomic cycle in Brazil, which reflected in lower inflation and interest rates, and with the automotive industry looking to rebound.

However, a truckers' strike in May 2018 created a lot of uncertainty, with a negative impact on all sectors of the economy, including the auto industry.

Despite the negative impact of the truckers' strike, the Company benefited from the recovery of the domestic market on the back of the growth of the domestic OE segment (sales to automakers) and the performance of the Aftermarket.

In view of the foregoing, the Company recorded growth of 14.4% in its net operating revenue in 2018 due to strong OE sales in the domestic market (21.4%), export market (15.5%), and Aftermarket (7.8%).

The chart below shows the Company's revenue broken down by market in 2018 and 2017.

The operating performance measured by EBITDA was R$ 466.9 million for the full year 2018 with an EBITDA margin of 18.0%, while EBITDA was R$ 401.8 million in 2017 with an EBITDA margin of 17.7%.

However, in the last quarter of 2018 some factors such as a rise in the price of raw material and the end of the payroll tax relief had an adverse impact on the Company's gross result and contributed to the slight decline in EBITDA margin compared to the same period in 2017. It is worth noting that for the Company the result tends to be lower in the fourth quarter than in all other quarters due to seasonal factors and the mix of products.

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Regarding the development of new technologies, MAHLE Metal Leve is ready to serve customers with its portfolio of products and services and, if needed, possesses the capability to develop and deliver integrated solutions for customers. The ability to collaborate with several players is key to prospecting new cutting-edge technologies increasingly faster and thus boost our business opportunities.

The use of biofuels in internal combustion or hybrid engines is an important alternative to significantly reduce CO2 emissions. The use of ethanol is a quick and efficient alternative to reduce full-cycle (from the well to the wheel) CO2 emissions as it uses an existing infrastructure. In the future, in combination with vehicle electrification and other advanced propulsion technologies such as fuel cells, it will help reduce greenhouse gas emissions that cause global warming.

In this respect, the start of the commercial production of MBE2 (MAHLE BioEtanol 2) is of the utmost importance because the results obtained in the last five years in a pilot ethanol power plant are a good indicative that Brazil has engine technologies, with bioenergy emerging as a local response to global decarbonization targets.

In 2019, a few challenges will need to be overcome due to macroeconomic developments across the globe.

However, given the prospects of recovery in Brazil's economy and particularly in the auto industry with a larger influx of new investments in the country driven by the Rota 2030 program (as discussed in item 9 of this report), the Company believes it is well positioned in the Brazilian market, with domestic market (OE and Aftermarket) accounting for 52.4% of its revenue in 2018.

2Macroeconomic Scenario and Outlook

The year 2018 was marked by a recovery, even though slower than desired by the market in general.

Returns were expected to be robust but were faced with events such as truckers' strike which slowed down the economic recovery process, and political uncertainty stemming from the presidential election.

To a certain extent, as economic activity expectations were frustrated in 2018, the market expects that a good part of growth has been postponed to 2019, mainly due to the reform agenda proposed by Brazil's new government.

In the international scenario, for 2019 there are fears that the U.S. economy is entering the late stage of the expansion cycle, along with the threat of a trade war between the U.S. and China, whose economy is weakening and China's slowdown could impact the growth of countries dependent on commodity exports, like Brazil, because of the inevitable fall in commodity prices. There is also uncertainty in Europe about the Brexit outcome coupled with France's protest crisis and Italy's budget crisis.

In Brazil, the level of economic activity may improve the levels of employment and income, with impacts on consumer credit access. Furthermore, investor confidence may grow, resulting in increases in private investments.

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3About MAHLE Metal Leve

We are a Brazilian automotive parts company that manufactures and sells internal combustion engine components and automotive filters. We manufacture the highest quality products using the very latest technology and continuously invest in research and development of new products and production processes.

We have been operating in Brazil since the 1950s and have a large portfolio of products and integrated solutions that many times have been specially tailored to our major customers. We operate in the OEM (Original Equipment Manufacturers) segment where our customers are car makers, and in the Aftermarket segment where our customers are large car parts distributors and engine overhaul companies.

Our products are produced and sold in Brazil and Argentina and exported to more than 60 countries, including the United States, Germany, Mexico, Portugal and Spain, for a diversified portfolio of customers including General Motors, Volkswagen, Fiat, Ford, Daimler MBB, Opel, International, Cummins, Volvo, PSA Peugeot, John Deere, Renault, Scania, Caterpillar, Honda, Hyundai, among others.

We have five production plants, four of which are located in Brazil in the cities of Mogi Guaçu, State of São Paulo, where we have two units, São Bernardo do Campo, State of São Paulo, and Itajubá, State of Minas Gerais, and one plant in Argentina in the city of Rafaela. We also have two distribution centers: one in the city of Limeira, State of São Paulo, and one in Buenos Aires, Argentina. We have a Technology Center located in the city of Jundiaí, State of São Paulo, which we believe is one of the largest and most well-equipped technology centers in Latin America for development of components and integrated solutions for internal combustion engines. This Tech Center allows us to add value to and meet the requirements of our customers in a customized and efficient manner, and to develop innovative new product technologies and processes.

We are part of the German group MAHLE, or MAHLE Group, one of the most traditional automotive parts suppliers in the world, which was founded in 1920. Today, the MAHLE Group, to which the Company belongs, operate around 170 production locations in 35 countries and on five continents and 16 research and development centers, where it employs around 80,000 people.

As part of the MAHLE Group, which has a global presence, we are able to exchange knowledge, provide and have constant access to the latest technology and develop new products together with our customers, which we believe are key factors to the high level of market penetration and customer loyalty that we have achieved.

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4Developments of the Automotive Industry

4.1Developments of the Brazilian market

Brazil's vehicle production increased 7.1% in 2018 and vehicle sales in the Brazilian domestic market were up 14.6% from 2017. According to the Brazilian automakers' association ANFAVEA, inventories at the end of 2018 reached 255.1 thousand units, amounting to 33 days' worth of sales, versus 219.1 thousand units or 31 days of sales in 2017.

The table below shows production, sales and total inventory of domestic vehicles in 2018 compared to 2017:

4.2Developments of the Argentina market

In 2018, Argentina's automotive industry posted a fall of 22.5% in sales and 1.9% in vehicle output compared to 2017.

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