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Tognum 2008 Results & 2009 Outlook

March 27, 2009

Tognum, a specialist for propulsion and power solutions, reported its 2008 results and 2009 outlook. In the financial year 2009, the financial and economic crisis will also have a negative impact on Tognum’s markets and its business performance. However, the company does expect to see a return to sustained growth rates in the medium term resulting once again in double-digit EBIT margins on average.

“In 2009, our successful business model will face completely new challenges,” stated Volker Heuer, chairman of Tognum AG’s Executive Board. “In terms of our revenues for 2009, we anticipate scenarios of 2 minus 10 to minus 20 percent compared with 2008. In spite of this, we expect to keep our adjusted return on sales in the upper single-digit range.” At the same time, Tognum wishes to allow its shareholders to participate in what has been a successful 2008 with a dividend increase to €0.70 per share. And for 2009, Tognum’s aim is to continue its policy of distributing a dividend of more than 30% of adjusted net income for the year that was established at the time of the IPO in the middle of 2007. Net profit for the current year is expected to be below the level achieved in 2008.

Order intake in 2008 was up 4% to €3,231 million (previous year: €3,107 million) and was thus above the revenue level of €3,133 million, which itself grew by 10.5% (previous year: €2,835 million). Adjusted for currency effects, Group revenues would have been up by close to 13%. Both operating segments, Engines and Onsite Energy Systems & Components, contributed to this increase. The export ratio remained unchanged at 79% in the year under review. While in North America, revenues in euro terms declined due to currency effects and the economic crisis, Tognum was able to increase its business volume in the regions of Europe and Asia.

Tognum has achieved the profit and margin targets for 2008 that had been specified at the end of 2007: the Group increased its adjusted earnings before interest and taxes (EBIT) by 4% to €407 million (previous year: €390 million), and the corresponding EBIT margin was 13.0% (previous year: 13.8%). Taking into account one-off and non-operating effects and applying an effective tax rate of 26.5%, net profit was up by around 33% year-on-year to €264 million (previous year: €199 million). This led to adjusted earnings per share of €2.01 (previous year: €1.58). The Supervisory Board and the Executive Board will propose to the annual shareholders’ meeting, to be held in Friedrichshafen on 9 June, a dividend increase for the financial year 2008 of 17% to €0.70 per share (previous year: €0.60).

The diversified and balanced product portfolio led to growth in key figures for both segments. In 2008, Tognum increased its revenues in all subsegments of the off-highway markets for large diesel engines and energy systems, and also as a component supplier to the automotive industry. The two operating segments also increased both their order intake and their adjusted EBIT performance. The Engines segment increased its segment revenues (before consolidation into the Group accounts) by 10% to €2,663 million (previous year: €2,416 million). The adjusted segment EBIT was up 7% to €401 million (previous year: €373 million). The sub-segments Marine, Power Generation and Defense in particular contributed to this growth, but further growth was also reported in the Industrial and After-Sales areas. The Onsite Energy Systems & Components segment generated segment revenues of €621 million (previous year: €527 million), representing an increase of 18%. At €34 million, this segment achieved a 9% increase in its adjusted EBIT (previous year: €31 million). Organic growth was primarily due to higher revenues from diesel engines and diesel gensets for energy systems. Revenues from fuel-injection systems produced by the subsidiary L’Orange, which celebrated its 75th anniversary in 2008, were also up 10%. Business volume in propeller shafts produced by Rotorion was marginally higher than in the previous year.

Compared with the end of 2007, equity at 31 December 2008 increased by €137 million to €672 million. This was primarily due to the excellent profit for the year. Consequently, the equity ratio at the end of the year stood at 26% (as at 31 December 2007: 23%). Net financial debt compared with the previous year rose by 14% to €336 million (previous year: €294 million). This increase was due, to a large extent, to lower interest rates resulting from the financial crisis. The reevaluation of hedging transactions on 31 December 2008 burdened the net interest result by €19 million. Moreover, the re-valuation of US-dollar 4 denominated loans on the balance sheet date also had a negative impact on net financial debt.

Tognum increased the size of its workforce by 750 employees in the year under review. The largest increase occurred in Germany, with 611 new employees. At the end of 2008, the group had 8,929 employees.

To develop the strengths of the operating units further and to increase their potential for success in the medium and long term, Tognum expanded its technology portfolio in 2008, for example by adding the key technology of exhaust after-treatment. In addition, the Group sharpened the profiles of what have now become five strategic initiatives further – focusing on the product portfolio, onsite energy systems, after sales, regional expansion and propulsion systems. The added fifth initiative referring to “Propulsion’” focuses on new technologies such as hybrid drive systems and customer specific system solutions. “In this field, we also reached several strategic milestones in 2008 on the way to becoming the preferred supplier of propulsion and energy systems,” says Tognum’s CEO Heuer. “We have set new standards with the engine for the world’s cleanest locomotive, for example, and with the use of stationary fuel cells.”

Following the internal restructuring of the group that was completed last year as part of the “Compass” project, an expansion of segmental reporting will now take place as of the financial year 2009. The aim is to provide an even more transparent separation of key figures for the operating units. For example, the engines incorporated into decentralised energy systems will in future be assigned to the new Onsite Energy & Components segment instead of the former Engines segment. Furthermore, figures for consolidated distribution companies outside Germany, such as MTU Italia, will now be partly consolidated in the newly created Distribution segment. Therefore, as of the first quarter of 2009 – in addition to the existing Holding/Consolidation reporting segment – Tognum will now report on four segments instead of three.


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