Tognum confirms and narrows guidance at the end of first half of 2010

• Order intake up to €1,389.5 million
• Revenues down as expected to €1,086.0 million
• Adjusted EBIT margin at 8.9%
• Guidance confirmed and narrowed

Friedrichshafen, 4 August 2010. The specialist for propulsion and power solutions Tognum has confirmed and narrowed its guidance for the full year at the end of the first half of 2010. The company now expects to achieve revenues of €2.4 to 2.5 billion, which is within the previously announced guidance range. Tognum now expects an adjusted EBIT margin between 7.5 and 9% which also lies within the range previously announced. The main reason for this is the higher demand in the field of distributed power supply, and in construction and industrial equipment. The outlook originally published in March assumed revenues of between €2.3 and 2.5 billion and an adjusted EBIT margin of between 6 and 9%.
“We are pleased with the positive development of the demand situation, which is why we have confirmed our guidance and are more specific by stating that it has now been adjusted upwards within the corridor we previously announced,“ stated Volker Heuer, chairman of the executive board of Tognum AG. “We continue to see 2010 as a year of transition. We have come up with a good balance of cost and production improvements, which are reflected in an improved adjusted gross profit margin. At the same time, we are investing in our sales activities and in particular in research and development. We are thus prepared for the new emission regulations and will further expand our technology leadership in the long term.”

Order intake up, revenues down as expected

The order intake was up 8.9% in the first six months of the year to €1,389.5 million (H1 2009: €1,275.9 million). Excluding the Rotorion activities, which were sold in 2009, the increase would have been 14%. This growth is due primarily to the good order situation in the Onsite Energy & Components segment – in particular in the supply business for OEM customers. Revenues were down 12.4% to €1,086.0 million (H1  2009: €1,239.2 million), as expected. Excluding Rotorion, they would have dropped only 8.1%. Revenue performance during the first half of the year initially was affected primarily by the low 2009 order intake as a consequence of the economic and financial crisis.

Higher adjusted EBIT

The adjusted EBIT was up 16.9% in the reporting period to €97.0 million (H1 2009: €83.0 million). This increase was due primarily to the improved capacity utilisation and the slight decline in selling and administrative costs. However, the company increased its expenditure for research and development by 11.9% to €77.2 million (H1 2009: €69.0 million). This investment in the future is intended to further enhance the company’s technological edge with new engines and systems. The adjusted EBIT margin increased to 8.9% (H1 2009: 6.7%).

Increased adjusted group net profit and improved adjusted gross profit margin

The adjusted group net profit was up 3.7% in the first six months of the year to €52.8 million (H1 2009: €50.9 million). As a result, the adjusted earnings per share for the reporting period amount to €0.40 (H1  2009:  €0.39).
An adjusted gross profit of €313.0 million (H1 2009: €303.6 million) represents a 4.3 percentage point improvement in the adjusted gross profit margin of 28.8% (H1 2009: 24.5%).

Slight decline in equity ratio and stable net financial debt

The equity ratio was down slightly compared with the end of 2009 due primarily to the dividend payment in May 2010, and as of 30 June 2010 amounted to 26.9% (31.12.2009: 27.6%). The net financial debt at €194.7 million remained at the level of last year’s closing date (31.12.2009: €192.2 million). Free cash flow ¹ improved in the first six months of the year by 31.3% to €85.6 million (H1 2009: €65.2 million).

Improved performance in the Engines and OE&C segments

The Engines and Onsite Energy & Components (OE&C) reporting segments reported improved earnings performance in the first half-year with a decline in revenues as expected. ² The Distribution segment reported slightly improved revenues with an earnings performance at the level reported last year.
Half-year revenues in the Engines segment at €743.3 million were 10.3% below the level reported last year (H1 2009: €829.0 million). Revenues were down primarily in Defense as a result of projects coming to an end and no new larger projects ready for completion in the current year. In our Oil & Gas business, the impact of lower raw material prices in 2009 and the associated decline in investments was still noticeable in the development of revenues. There will be a delay before the increased order intake that has since been reported will lead to higher revenues in this application area. The After Sales/Other business reported a positive performance and provided support for the segment. The adjusted segment EBIT was up 32.1%, improving significantly in the first six months of the year compared with the same period last year, to €83.5  million (H1 2009: €63.2 million).
The OE&C segment at €322.2 million in the first half-year reported 12% lower revenues than in the same period last year (H1 2009: €366.1  million). Excluding the Rotorion activities that were sold last year, this would have represented an increase of 4.4%. In the OE Diesel Systems & Engines application area, the supply business with OEM customers developed very positively, whereas business in diesel systems, due to the weak North American market, was restrained. The adjusted segment EBIT was up 15.7% to €12.5 million (H1  2009:  €10.8  million).
Revenue in the Distribution segment was up 5.8% in the reporting period compared with the same period last year to €229.9 million (H1  2009: €217.2 million). The adjusted segment EBIT at €21.2 million was at the level reported last year (H1 2009: €21.3 million).

Forecast for 2010

Despite the continuing volatile market environment, Tognum confirms and narrows its guidance for the current 2010 financial year. This is based on the trends observed to date and more concrete information for the second half of 2010. The company thus expects revenues of between €2.4 and 2.5 billion for 2010, which is within the guidance range communicated previously. This is due to current orders with a delivery date in the second half of 2010 and in particular to the increased demand in the application areas of distributed power supply, as well as construction and industrial equipment.
The company now expects the adjusted EBIT margin to be within the range previously announced of 7.5 to 9%. There will be a positive impact resulting from the increased demand and the improved capacity utilisation. With a tax rate of around 30 to 32%, Tognum forecasts clearly positive adjusted earnings per share. In the medium term, the company expects to see above-average growth in revenues as a result of the abating economic crisis and an upswing on off-highway markets.
The interim report for the first half of 2010 is available for download at www.tognum.com under Investors

Key figures for the Tognum Group

In € million (except *)	H1 2009	H1 2010	Change	Q2 2009	Q2 2010	Change
Order intake	1,275.9	1,389.5	8.9%	625.3	693.0	10.8%
Revenues	1,239.2	1,086.0	-12.4%	597.5	576.6	-3.5%
EBIT (adjusted)	83.0	97.0	16.9%	19.2	54.2	182.3%
EBIT margin (adjusted)	6.7%	8.9%	2.2pp	3.2%	9.4%	6.2pp
Net profit (adjusted)	50.9	52.8	3.7%	12.7	30.5	140.2%
Earnings per share* (adjusted) in € 3	0.39	0.40	2.6%	0.10	0.23	130.0%
Free cash flow 4	65.2	85.6	20.4	3.0	-38.2	-41.2
Equity ratio 5	25.3	26.9	1.6pp	25.3	26.9	1.6pp
Gross profit margin (adjusted)	24.5	28.8	4.3pp	23.1	28.9	5.8pp
Employees* 6	8,904	8,818	-1.0%	8,904	8,818	-1.0%

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¹ Free cash flow = cash flow from operating activities plus the cash flow from investing activities
² All segment data including intersegment relations, i.e., transactions between the segments
³ Earnings per share calculated on the basis of the weighted number of shares: 131,375,000
⁴ The free cash flow comprises the cash flow from operating activities plus the cash flow from investing activities
⁵ Shareholder’s equity as a proportion of total assets
⁶ Value on the reporting date (30 June 2010)