Tognum Completes First Quarter as Expected

Friday, May 14, 2010

The specialist for propulsion and power solutions Tognum has completed the first three months of the current financial year in line with expectations and confirms its forecast for the full year.

“Despite the modest quarterly revenues as expected, we managed to achieve an adjusted EBIT margin of 8.4%,” said Volker Heuer, chairman of the executive board of Tognum AG. The company continues to expect an adjusted EBIT margin (adjusted return on sales) of 6 to 9%, with revenues of €2.3 to 2.5 billion. In the medium term, Tognum intends to grow faster than the market and achieve a double-digit return on sales. “We are currently observing positive signs, primarily in our after sales business, in the oil and gas industry and in distributed energy systems,” Heuer added.

Adjusted EBIT margin stable, despite declining revenues
The order intake in the first three months of 2010 at Tognum was up 7.1% to €696.5 million (Q1 2009: €650.6 million). Although Tognum considers this increase to be an encouraging sign that demand is beginning to recover, it is still not an indication of steady growth. Revenues were down 20.6% compared with the same quarter last year to €509.4 million (Q1 2009: €641.8 million). If the figures for the Rotorion operations that were sold as at 31 October 2009 are excluded, the decline would have been 15.8%.

Adjusted earnings before interest and tax (adjusted EBIT) at the end of the three-month period amounted to €42.8 million and was thus a third below last year’s level of €63.8 million. This resulted primarily from the drop in revenues and increased R&D expenditure. Tognum nevertheless succeeded in achieving an adjusted EBIT margin of 8.4% (Q1 2009: 9.9%). The company is thus within its target corridor for the full year.

Profitability supported by after sales business
Adjusted gross profit at €146.4 million dropped 11.6% below last year’s level (Q1 2009: €165.7 million). In spite of this, the adjusted gross profit margin continued to improve, increasing to 28.7% in the first quarter of 2010 compared with 25.8% in the same period last year. There was a positive impact resulting primarily from the improved revenue mix, which was due to the relatively high contribution from after sales business and the sale of the propeller shaft unit in 2009.

Adjusted net income in the first quarter of 2010 amounted to €22.3 million (Q1 2009: €38.2 million). This results in adjusted earnings per share of €0.17 (Q1 2009: €0.29).

Targeted investments in research and development
Tognum increased its expenditure for research and development in the first quarter of 2010 as planned by 24.1% to €37.6 million. “By investing in the new Series 1600 engines and in the succeeding generations of the Series 2000 and 4000 engines, our intention is to increase our

competitive edge by offering leading high-tech products,” Heuer explained. “For this reason, we see the tougher emission regulation as an opportunity for us.”

Sound financing structure
The free cash flow, which consists of cash flow from our operating activities and investing activities, doubled in the first quarter of 2010 to €123.9 million (Q1 2009: €62.2 million). This was due primarily to reduced inventory levels and receivables, which resulted in a reduction in net working capital.

Net financial debt was reduced significantly once again compared with the end of 2009 from 192.2 to €86.2 million. The company’s equity ratio improved from 27.6% as at 31 December 2009 to 28.2% as at 31 March 2010. This is the highest level since the IPO in mid-2007.

Revenue and earnings performance in the segments
Revenue performance in all segments–Engines, Onsite Energy & Components and Distribution–declined. In contrast, After Sales reported positive performance in all three segments to provide significant support. The Engines segment generated revenues in the first quarter of 2010 of €362.6 million (Q1 2009: €450.5 million), 19.5% below last year’s level. In the marine application area, the decline in revenues affected our business in yachts and commercial ships, in addition to our government and project business. Our business in industrial engines also declined, although business in rail vehicle applications was again at the level reported last year. In the defence application area, major projects came to an end as scheduled, with the result that revenues in this area were also down. The adjusted EBIT margin for the Engines segment amounted to 10.7% (Q1 2009: 11.1%). The order intake at €434.6 million was at the same level reported last year (Q1 2009: €436.4 million). In the first quarter of 2010, revenues from the mining and oil and gas industries continued to be affected by the drop in price levels on the international raw materials markets last year. With raw material prices now rising again, the willingness to invest is also increasing, which now leads to an increase in order intake.

In the Onsite Energy & Components segment, revenues were down 23.7% to €143.9 million (Q1 2009: €188.5 million). If the figures for the Rotorion propeller shaft operations are excluded, the decline would only have been 5.0%. The Onsite Energy Diesel Systems & Engines reported declines–due primarily to the reduced demand for diesel systems. In contrast, business performance with genset manufacturers was positive. The adjusted EBIT margin for the Onsite Energy & Components segment was 3.6% (Q1 2009: 7.1%). The order intake was up 24.1% in the first quarter of 2010 to €220.6 million (Q1 2009: €177.7 million). Signs of growth are reported from Onsite Energy Gas & Fuel Cell Systems and Injection Systems.

Revenues in the Distribution segment declined to €92.9 million (Q1 2009: €97.7 million), while the adjusted EBIT margin increased further to 11.2% (Q1 2009: 8.0%). This was due primarily to the excellent earnings situation in Asia.

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