Tognum invests €75 Million in Engine and Systems Production

Posted on August 12, 2008

The Tognum Group (ticker symbol TGM, WKN A0N4PE) continues its expansion trend. The company decided to invest an additional €75 million in capacity expansion in the production of mtu engines, L’Orange high performance injection systems, as well as the extension of the mtu Onsite Energy power generation systems during the current and the coming year.
  • Continued Internationalization in the Production Process
  • Searching for New Manufacturing Sites in the U.S.
  • Reduced Currency Risks and Expenses
  • Continued Expansion of Parts Production in Friedrichshafen
  • More Production Capacities for Series 2000 and 4000

Friedrichshafen, 12 August 2008. The Tognum Group (ticker symbol TGM, WKN A0N4PE) continues its expansion trend. The company decided to invest an additional €75 million in capacity expansion in the production of mtu engines, L’Orange high performance injection systems, as well as the extension of the mtu Onsite Energy power generation systems during the current and the coming year. Particularly the in-house production of essential components for high performance diesel engines will be expanded and given a more international outlook with an investment volume of around €50 million. The Tognum Group is therefore currently looking for a new site in the US dollar region which would initially supply the existing assembly plant in Detroit (Michigan, USA) with cylinder heads and components for the production of the successful Series 4000 engines. Furthermore, at the existing site near Istanbul (Turkey), the first step will be to set up a manufacturing facility for cylinder liners designed for the Series 4000. Simultaneously with the installation of new international manufacturing sites in the US and Turkey, an amount of more than €10 million* will be invested at the existing production site in Friedrichshafen in order to boost quantities in conrod and crankcase production facilities.

Volker Heuer, CEO of Tognum AG explains: “With these major investment efforts for the future, we will further increase the flexibility in our engine production and will be able to further grow revenues from 2010 onwards.“ The new US site, in combination with a purchasing offensive in the dollar region, is designed to have sustained calming effects on the currency volatility currently affecting Tognum. “Moreover, in the long term, we are enhancing our competitiveness, and the production on site will improve our chances to be awarded major orders with public authorities“, comments Heuer on the confirmation of the Executive Board’s plans by the Supervisory Board. The Tognum Group continues to see strong sales potential for its broad product portfolio, which is available to 22 different customer groups in a wide variety of regions.

The Supervisory Board, which had received detailed information on the planned reorganization from the Executive Board in its previous two meetings, approved the continuation of negotiations with the shortlisted US sites and the conclusion of an agreement with the best of those sites. Board member Dr. Gerd-Michael Wolters, who is responsible for Technology & Operations, comments: “The US have a keen interest in the production of high quality engines in their country. We will be able to start parts production as early as late 2009.“ Plans are currently focusing on securing suitable premises by the third quarter of 2008, that comes with the ideal infrastructure in terms of transportation, energy and labour whilst at the same time offering long-term options for expansion. “Regardless of the global expansion in production, we will continue to step up our efforts regarding our new production logistics facility in Friedrichshafen. Also, as planned, we will start assembly operations for our Series 1600 during the fall of 2009 at Lake Constance“, Dr. Wolters explains the overall schedule.

The development of a new engine production site in the US is another consistent step in the implementation strategy of the Tognum Group, which was initiated in 2005. Besides the assembly plants in Friedrichshafen (Lake Constance/Germany) and Detroit (Michigan/USA), mtu also has an assembly facility in Suzhou/China for Series 2000 engines, and has started a local Joint Venture in China targeted at the assembly of Series 4000 engines.

Apart from the expansion in the engine business, Tognum Group is currently investing around €10 million as planned in the “mtu Onsite Energy“ sites Mankato (Minnesota/USA), Augsburg and Ottobrunn near Munich (both in Germany): these investments are targeted at the expansion of the production capacities for diesel, gas and fuel cell based onsite power generation systems. Another element is the growing component business of Tognum subsidiary L’Orange GmbH in Glatten (Germany/Black Forest area), which is currently expanding their production capacities for high pressure injection systems with an investment volume of €16 million.

* Total investment of about €50 million for the worldwide expansion for inhouse production include more than €10 million for investments in Friedrichshafen.

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With its two business units, “Engines” and “Onsite Energy & Components,” the Tognum Group is one of the world’s leading suppliers of engines, propulsion systems and decentralized energy systems. These products are based on diesel engines with up to 9,100 kilowatts (kW) power output, gas engines up to 2,000 kW, fuel cells up to 363 kW and gas turbines up to 45,000 kW.

The product portfolio of the “Engines” business unit comprises mtu engines and propulsion systems for ships, for heavy agricultural, rail and military vehicles, and for the oil and gas industry. The portfolio of the “Onsite Energy & Components” business unit includes decentralized energy systems, fuel-injection systems from L’Orange, and drive shafts from Rotorion. The energy systems comprise diesel engines for emergency power generation, basic and peak load, and cogeneration power plants based on gas engines, fuel cells and gas turbines that generate both electricity and heat.

In 2007, Tognum generated revenue of more than €2.8 billion and employs approximately 8,600 people. With 26 fully consolidated subsidiaries, more than 130 sales partners and 1,100 authorized dealers, Tognum’s sales and service structure has a global reach. The shares of Tognum AG (ISIN: DE000A0N4P43) have been listed in the MDAX share index since 2007.

Disclaimer regarding forward-looking statements et al.:

This report also contains forward-looking statements based on assumptions and estimates of Tognum’s Executive Board of Management. Although we assume that our assumptions and estimates on which we have based these forward-looking statements are realistic, we cannot guarantee that they will in the future prove to be correct. The assumptions and estimates, by their nature, may harbour risks and uncertainties that may cause the actual figures to differ considerably from the forward-looking statements. Factors that may cause such discrepancies include, among other things, changes in the economic and business environment, variations in exchange and interest rates, the introduction of competing products, lack of acceptance for new products or services and changes in corporate strategy. Tognum does not undertake any obligation to update, to review or to confirm the forward-looking statements or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this announcement.
Wolfgang Boller Spokesman Regional and Business Media
+49 7541 90 2159
IR Team
+49 (0)7541 90 3318